Amazon, eBay face off over state sales taxes

McClatchy NewspapersNovember 30, 2011 

WASHINGTON — A Capitol Hill clash between Amazon.com and eBay complicates California's hopes for an online sales-tax fix.

The fight flared Wednesday, underscoring how big differences between the Internet sales giants stand in the way of congressional efforts to help California and other states collect hundreds of millions of dollars in taxes.

Each side has its respective political champions, and each side wants small businesses exempt from the burdens of collecting state taxes for online sales. They diverge sharply, though, over what "small" means.

"We want to stand with the little guys," Rep. Zoe Lofgren, D-Calif., noted at a hearing Wednesday in the House of Representatives, "and the difficulty is, who is that?"

The Seattle-based Amazon wants a much more limited small-business exemption than eBay, which is based in Lofgren's hometown of San Jose, Calif. So long as the companies remain apart, they can't put their combined weight behind an online sales-tax bill, versions of which have been floating around Congress for years.

"It's been the last decade that we've been dealing with this issue," Rep. Robert Goodlatte, R-Va., noted ruefully.

The differences and the delays matter because the clock is ticking, particularly in California.

In September, Gov. Jerry Brown signed legislation giving Amazon a one-year reprieve from a state plan to enforce the collection of California sales tax. In exchange, Amazon stopped pursuing a ballot measure to overturn the state's online-tax law, which declares that an out-of-state company's "affiliates" — businesses or websites that link to it — count as a presence in the state for tax-collecting purposes.

The reprieve is supposed to give Amazon and other companies a year in which to convince Congress to pass national online sales-tax legislation. This wouldn't impose a national tax. Instead, it probably would authorize states to enact their own laws governing the collection of taxes from online sales.

Currently, under a 1992 Supreme Court ruling, only sellers with a physical presence in a state, such as a store or warehouse, must collect that state's sales tax. (The court stressed though, that Congress has the power to change this.)

It's up to the individual customer to remit payments to the state if the online seller doesn't collect. This rarely happens, however. California estimates that it loses some $200 million annually because of uncollected taxes from online sales.

"There's a complete lack of compliance," acknowledged Rep. Judy Chu, D-Calif., a former member of the California Board of Equalization, which administers the state's sales tax

Nationwide, total lost state sales-tax revenues have been estimated at upward of $23 billion. Other states, including Texas, Illinois and South Carolina, have passed their own online sales-tax measures in recent years.

Tod Cohen, an eBay vice president and deputy general counsel, urged the House Judiciary Committee on Wednesday to exempt companies with annual sales of up to about $30 million from collecting state sales taxes. This matches a small-business definition used by the Small Business Administration.

Offering the company some support, Rep. Dan Lungren, R-Calif., and 31 other House members back a nonbinding resolution declaring that "small online businesses and entrepreneurs" should be protected from tax-collecting burdens.

Amazon officials counter that the small-business exemption should be limited to sellers with annual revenues below $500,000.

"It seems very reasonable to us," Paul Misener, Amazon's vice president for global public policy, told lawmakers. "We wanted one that was much lower."

Adding to the complications, Patrick M. Byrne, the chairman and chief executive officer of Overstock.com, warned lawmakers about the cost and potential unreliability of the software needed to process online sales taxes.

Several competing versions of an online sales tax bill have been introduced this year, with the prospects for action still unclear.

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