Low response to NC amnesty offer as states aim to collect more sales tax from online retailers

By Emery P. Dalesio, AP
Thursday, August 26, 2010

NC sees few takers to online sales tax amnesty bid

RALEIGH, N.C. — Just over two dozen of the 450 online retailers offered amnesty if they begin collecting North Carolina taxes on Internet sales have taken the offer.

In one of the country’s most aggressive efforts to collect sale taxes many retailers don’t believe they owe, the state’s revenue agents already have started auditing the hundreds of companies that didn’t go along.

“There are already some Internet retailers who didn’t elect to participate in the program who are under examination,” Revenue Department spokeswoman Beth Stevenson said. “We’re going to prioritize our resources to conduct audits. If a company will not participate in the audit, we will issue summonses for the records needed to do the audit.”

That’s the normal process for determining a company’s tax liability, and unresolved disputes are sometimes settled only in court, she said.

Courts or Congress may be where a growing dispute over whether states can collect taxes from Internet sales is settled.

As states with recession-battered budgets look for ways to increase tax revenues, four have adopted routes around a 1992 U.S. Supreme Court ruling that states can’t force businesses to collect sales taxes if they lack a physical presence within that state. States also charge their residents a “use tax” for out-of-state purchases, but few consumers pay it.

North Carolina, New York and Rhode Island passed laws that make an online retailer responsible for sales tax collections if residents of their states run Web sites that include advertising links driving business to the retailer. These local affiliates collect a percentage of resulting sales.

Colorado’s new online sales tax law requires out-of-state, online retailers to either collect sales tax or send customers an annual notice of how much tax they owe the state. Retailers would also have to report that to the state.

Another 13 states including Illinois and Tennessee have considered but not approved similar laws in the past two years, the Washington, D.C.-based Tax Foundation said. Hawaii and California lawmakers passed Internet tax collection laws that were vetoed by their governors.

Federal legislation introduced in July would allow the 23 states working to streamline sales and use taxes to require that online retailers collect state sales taxes.

Supporters say besides increasing state revenues, forcing online retailers to collect sales taxes would even the competition between Internet-only stores and brick-and-mortar shopkeepers.

“By not enforcing sales tax laws, state governments have provided these online retailers with a significant competitive advantage and are subsidizing these retailers’ business,” said Oren Teicher, CEO of the American Booksellers Association, the trade organization for independent stores.

But most retailers are likely to believe they’re not responsible for collecting taxes due because of what amounts to online advertising on someone else’s Web site, said Joseph Henchman, the Tax Foundation’s director of state projects.

“The danger of this is a state being able to impose its tax law on any company that advertises in the state,” Henchman said.

How much money is at stake isn’t clear.

University of Tennessee researchers said last year that uncollected state and local taxes from online sales could total $8.6 billion this year. But the bulk of e-commerce sales are transactions between businesses rather than consumer purchases. And online consumer shopping represents about 4 percent of all retail sales in the United States, the Census Bureau reported.

Still, New York netted more than $120 million in taxes collected by 30 online retailers since that state’s law took effect in 2008, taxation department spokesman Brad Maione said.

Amazon.com Inc. is appealing New York’s law after a trial court judge last year sided with the state. Maione said because of the litigation he could not discuss whether the agency acted against retailers that did not start collecting sales taxes. About 200 were sent letters informing them of the new law, he said.

Amazon also is resisting North Carolina tax collectors. In a federal lawsuit filed in Seattle, where it is headquartered, Amazon said North Carolina demanded the names and addresses of buyers and a description of their purchase. Amazon said complying would harm customers who may have bought controversial books or movies, and could hurt future sales.

“We collect and remit sales tax in states where we have a physical presence and where we have a legal requirement to do so,” Amazon spokeswoman Mary Osako said.

North Carolina warned in April when it offered the amnesty that it might pursue retailers for years of taxes the state claims are due if they didn’t sign up and begin collections on Wednesday.

The state offered to forgive taxes, penalties or interest for periods before September, and not demand data about consumers who bought from the Internet retailer. But only 27 out of the hundreds of retailers North Carolina suspects may owe taxes have chosen to participate, the agency said.

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