Pennsylvania is warming to legislation that would force Internet-based retailers to collect and remit sales taxes, an issue that legislators, administration officials and other groups say is a priority for a better business environment.
Everyone seems to be emboldened by the Sept. 8 news that California struck a deal with Seattle-based retail and technology giant Amazon.com Inc. for the company to begin collecting and paying sales taxes to the state in 2012 if it can’t get changes in federal policy on sales tax before then.
Small-business and retail groups herald the decision as an omen that Amazon is giving up its fight against collecting sales taxes. However, they said Amazon isn’t the only game on the Web and legislation is the only way to create a business climate where bricks-and-mortar retailers aren’t at a 6 percent disadvantage.
“The California situation is a watershed moment,” said Dan Hayward, the Pennsylvania spokesman for the Alliance for Main Street Fairness, a national movement of mom-and-pop stores and large bricks-and-mortar retailers, such as Wal-Mart Inc., that have been fighting to have online retailers collect the same sales taxes they do.
If Amazon is willing to collect sales taxes in California, it should do it in every state, Hayward said.
Gov. Tom Corbett‘s administration and legislators also signaled they would renew talks on the issue this year.
Mark Ryan, executive director for the state Senate Finance Committee and a staff member for its chairman Sen. Michael Brubaker, said the senator is reviewing the California deal alongside recently enacted legislation in Texas that requires online retailers to collect sales taxes.
Brubaker held hearings in May to take testimony from businesses, trade groups and academics about online sales taxes and the impact to the state’s small retailers. Pennsylvania loses about $350 million annually from online retailers not collecting sales taxes, the state Revenue Department said at the hearings.
“We will work with the administration to develop an appropriate policy for Pennsylvania,” Ryan said.
Corbett officials are on the same page. Pennsylvania Revenue Secretary Dan Meuser during a Sept. 13 breakfast event in Carlisle listed e-commerce sales taxes as an administration priority in reforming the state’s tax structure.
“The governor believes in fairness,” Meuser said.
Companies with a physical presence must collect sales taxes in Pennsylvania, he said. At the same time, the administration counts Amazon and other online retailers as an important part of the state’s economy by employing thousands, he said.
“However, we have a fiduciary duty and statutory responsibility to enforce nexus laws fairly,” Meuser said.
Whether the legislature passes bills on e-commerce taxes depends on time devoted to other issues, such as transportation funding, Marcellus Shale drilling and redistricting. No e-commerce bills are on the table at this time, but could be soon, some groups said.
“I do think this is a priority,” Hayward said. “The legislators and governor have heard from small businesses across the state that want e-fairness.”
“Amazon supports a truly simple national solution, evenhandedly applied,” spokeswoman Mary Osako said in an email in May. The company has not commented beyond that on sales tax issues. The company did not immediately return messages for comment on this story.
The Washington, D.C.-based trade group Direct Marketing Association, which represents online and catalogue retailers, maintains the position that only Congress can give states the authority to collect online sales taxes per court decisions.
Sales tax revenue and jobs could be hurt by legislation depending on how Pennsylvania tailors it, said Jerry Cerasale, the association’s senior vice president of government affairs. If the state goes after sales affiliates of online retailers, the companies will just cancel those affiliations. There’s also the threat of reduced distribution operations, he said.
All retailers should collect and remit the same sales taxes, particularly if they have a physical presence — or nexus — in a state, advocacy groups said. Nexus is the standard applied in a 1992 U.S. Supreme Court ruling that allows online and catalogue retailers to bypass sales taxes.
In Pennsylvania, where online retailers have warehousing because of transportation hubs, they still don’t collect sales taxes, according to the state. Amazon has five distribution centers, including two in Cumberland County and one in York County. The centers are owned and operated by an Amazon subsidiary, the loophole that allows the company to avoid collecting sales taxes, retail groups said.
“(E-commerce tax) is still very much a priority for the retail association,” said Brian Rider, president and CEO of the Harrisburg-based Pennsylvania Retail Association. “We’ve always said this is about fairness.”
After numerous conversations with senior administration officials and lawmakers, there’s a “high probability” for legislation in both houses, he said
There are about 600,000 conventional retail jobs in the state compared with several thousand at online retailer facilities, he said. That and recent laws in other states mean it’s time Pennsylvania applies one standard to all retailers, he said.
Online retailers may have gotten a free ride over the last 19 years, but the revenue the state could see from balancing the scales is temping for politicians, said Richard Randall, president of York County-based business consultancy New Level Advisors.
However, balancing sales taxes alone will not save bricks-and-mortar stores from the growing market share of online retailers, he said. They still offer price advantages on many products. And although stores pride themselves on customer service, it only takes one or two bad experiences to drive consumers back to the Web, he said.
“The power that the Internet has given consumers on price knowledge really has changed how retailers do business,” Randall said. “If you’re going to be a bricks-and-mortar, you really need to get out your pencil and sharpen your prices.”