The state Senate Finance Committee took up discussion in a hearing Wednesday about collection of sales taxes by remote retailer, which includes catalog and online retailers such as Amazon.com Inc. The Seattle company announced it’s hiring for its distribution operations in Cumberland and York counties.
The debate over whether remote retailers ought to collect sales taxes has boiled over in other states and represents an ongoing discussion Pennsylvania is having about its finances and economic competitiveness, officials and business groups said.
Staff for senators on both sides of the aisle said legislation to require remote retailers to collect sales taxes is not pending.
“The senator (Mike Brubaker) wants to get a difference of opinion in these hearings, and they’ll inform our decisions as we move forward,” said Mark Ryan, executive director for the finance committee from Sen. Mike Brubaker‘s office. The Republican committee chairman represents parts of Chester and Lancaster counties.
Sales taxes have implications for revenue in the budget process and fairness in Pennsylvania’s business climate, especially for small brick-and-mortar retailers who say they’re at a price disadvantage to online retailers that don’t collect sales taxes, Ryan said.
“That’s the point of the hearing: Is it a big problem? How important is it, and is it something that needs to looked at,” said Josh Myers, the finance committee’s executive director for the Democrats and a staffer for Sen. John N. Wozniak, who represents parts of Cambria, Centre, Clearfield, Clinton and Somerset counties.
Pennsylvania could gain between $246 million and $398 million in new revenue in 2012 if online retailers such as Amazon collected sales taxes in the state, according to a recent study by Robert P. Strauss, an economics and public policy professor at Pittsburgh’s Carnegie Mellon University. The study was funded by the Alliance for Main Street Fairness, a group pushing for online retailers to collect sales tax the same as bricks-and-mortar stores do.
Under a 1992 U.S. Supreme Court ruling — Quill Corp. vs. North Dakota — remote retailers that do not have a significant “nexus,” or presence, in a state do not have to collect sales taxes, said Ron Barnes, vice president for state affairs with the Direct Marketing Association, a Washington, D.C.-based trade group that represents direct mail firms, email marketers, and catalogue and remote retailers.
The issue is one that would be better dealt with in Congress, Barnes said. State policymakers should consider the economic competitiveness of their states before jumping into legislation, he said.
“Businesses make a decision to move to a state, expand in a state, and stay in a state based on the business climate,” he said.
If the legislature pursues bills requiring remote retailers to collect sales taxes, it might be wary of run-ins other states had with the likes of Amazon. Last year, Texas’ comptroller sent a $269 million bill to the company for four years of uncollected sales taxes from customers in the Lone Star State.
Not long after that, Amazon said it was closing a distribution center in Texas; but it has not yet done so, according to the Austin American-Statesman newspaper. The entire exchange is being reviewed by the U.S. Securities and Exchange Commission, according to Amazon’s first-quarter earnings report.
Last year, Amazon said it was hiring about 1,400 people for its three midstate warehouses: one in Lewisberry, York County, and in Middlesex and South Middleton townships, Cumberland County. On April 25, the company said it would hire more workers for all of its Pennsylvania warehouses and others around the country, but it didn’t say how many people.
The company did not return phone calls seeking comment for this story.
Amazon’s distribution facilities are operated by a separate entity called Amazon.com.dedc LLC, according to Amazon’s statements.
Amazon uses the subsidiary to say it doesn’t have a significant nexus in the states and doesn’t have to collect sales tax, said Todd Dickinson, owner of Aaron’s Books in Lititz, Lancaster County.
“Either they’re Amazon employees or they’re not,” he said. “Either they’re Amazon facilities or they’re not. They can’t have it both ways.”
When large retailers don’t collect sales taxes, it puts the small retailer at a 6 percent disadvantage, he said.
One of the reasons remote retailers don’t collect sales taxes is the administrative logistics, which would add significant costs, said Barnes of the Direct Marketing Association. That would put remote retailers at a disadvantage, he said.
That’s not true, said Scott Peterson, executive director of the Streamlined Sales Tax Governing Board Inc., a Nashville, Tenn.-based organization promoting simplified and standardized sales taxes across the U.S.
Software for sales tax collection is sophisticated enough to handle the task, and certainly not out of the reach of Amazon, which also is a significant player in Web-based technology, cloud computing and electronic devices, Peterson said.
However, Amazon is not giving in, he said. Even if Pennsylvania streamlined its sales tax laws, some large companies would still dodge collection, he said. Amazon doesn’t collect sales taxes in streamlined states, he said.
“This is a kicking-and-screaming thing,” Peterson said.
Twenty-four states — including New Jersey, West Virginia and Amazon’s home state of Washington — have adopted standardized language, definitions and reduced exemptions that make it easier for all retailers to collect and pay sales taxes. Pennsylvania is not one of them, but legislators have been more receptive lately, Peterson said.
“Most states do things right,” he said. “But there are just enough things that the states do wrong that it makes it more difficult if (a company is) doing business everywhere.”