Editor’s Note: An End to the Tax Holiday for Online Shoppers?
As I write this (on Tax Day), Sen. Dick Durbin (D-Ill.) is about to propose sweeping legislation that would impose a tax on all online purchases in a move aimed at closing states' budget shortfalls.
Durbin's bill, dubbed the Main Street Fairness Act, intends to push online retailers to collect state sales tax on items purchased out of state. For more than a decade internet shoppers have enjoyed a sales tax holiday as a result of sales tax moratoriums established in 1998 to foster growth in the digital sales business. But with e-commerce businesses like Amazon.com no longer fledgling entities, and with states' budget deficits growing, imposing an e-commerce sales tax has become a hot-button issue.
Companies like Overstock.com and Amazon are already starting to feel the pain of state legislation passed earlier this year around this issue. For example, Overstock launched a program to reward its customers in Arkansas, Illinois, New York, North Carolina and Rhode Island — states where it cut its affiliate program due to efforts by those states to make its affiliates a "nexus" for tax purposes. Overstock is redirecting the ad dollars it normally spends on affiliate payments towards paying credits in its Club O program directly to consumers in those states.
Amazon put a similar program in place for Hawaii, Illinois, North Carolina and Rhode Island after those states passed comparable legislation. And in February, Amazon said it would close a distribution center in Texas, where the state comptroller claims the company owes $269 million in sales tax because of its physical presence.
As I see it, the issue becomes even more complicated for cross-channel retailers who sell through a variety of channels, including websites, catalogs and brick-and-mortar retail stores.
One thing is for sure: Most big-box retailers are siding with the passage of these new online tax laws. This is most likely because the majority of their sales come from brick-and-mortar stores. Wal-Mart, Target, Best Buy, Home Depot and Sears are working with the Alliance for Main Street Fairness, a group that's been instrumental in getting states' online sales tax laws changed.
But what about specialty retailers, who sell equally through these channels? Where do they stand? What side should cross-channel retailers support in the debate? And what do you think about this issue in general? Please let me know by dropping me a line. I'd love to get your input on this important topic.