States consider taxing Internet sales to help boost revenues 12:00 AM CDT on Wednesday, April 14, 2010 By MARIA HALKIAS / The Dallas Morning News mhalkias@xxxxxxxxxxxxxx As two trends head in opposite directions - falling tax revenues and rising Internet shopping - state lawmakers are increasingly turning to online sales taxes as a potential fix for recession-ravaged budgets. In recent weeks, legislators in Maryland and Connecticut held hearings on whether to force Internet stores to collect local sales taxes. Last month, Colorado's $1.3 billion deficit led legislators to pass a law requiring e-commerce sites to tax. New York, North Carolina, Rhode Island and others states took or tried to take action last year. Texas is looking at a two-year budget shortfall of as much as $15 billion. Speaking recently in Austin, Texas Comptroller Susan Combs said the state is losing almost $600 million a year in state and local sales taxes from online purchases. Over the next decade, online shopping is forecast to grow five times as fast as brick-and-mortar retail, according to a Goldman Sachs research report. It predicts online shopping will go from 4.4 percent of all U.S. retail sales today to 14.6 percent by 2020. These trends "should create a more favorable climate for leveling the playing field and, in fact, efforts to move forward with legislation have intensified over the past year," said Wayne Zakrzewski, associate general counsel at J.C. Penney Co. The Plano-based department store chain is working with a group of businesses and state government officials on a proposal to Congress that they're calling the "Main Street Fairness Act." The proposal would allow states to require online sellers to collect sales taxes whether or not they have a physical presence in the state. Obstacles are significant, but compromises are being made, Zakrzewski said. "This is the best chance we've ever had to pass this legislation." Still, don't expect sales taxes to start regularly appearing on your check-out page anytime soon. This issue moves at the speed of a complicated graphic downloading over a dial-up connection on an aging desktop PC. A group of 23 states has been trying to streamline sales tax issues to ease online enforcement for 10 years. Since 2008, Texas comptroller auditors have been investigating whether Amazon.com Inc. should be collecting sales taxes in Texas and still have no conclusion. Amazon.com has been battling the state of New York for almost three years in court. Tax-free online shopping, on the other hand, is growing fast as high-speed Internet connections become commonplace. "There's going to be a tipping point," said Ronnie Volkening, chief executive of the Texas Retailers Association. "It used to be a way to avoid sales taxes. Now it's just how we all do business. All age ranges consider it an easier way to make purchases, and it's growing." Price differences Consumers trying to save money turn to the Internet to find lower prices. Almost two-thirds of women say they shop weekly at the supermarket and at mass merchants such as Wal-Mart, according to WSL Strategic Retail's annual How America Shops study. The next most frequented weekly shopping destination is the Internet, with 24 percent of women saying they turn to their computers, ahead of drugstores (20 percent) and department stores (18 percent). As the biggest online retailer, Amazon is the issue's poster child for brick-and-mortar retailers seeking to remove the tax-free advantage. Its sales of $24.5 billion last year are forecast to reach $32 billion this year and $39 billion next year. That kind of growth is the equivalent of annually swallowing all the business done by Barneys New York, Neiman Marcus Inc. and Saks Inc. Amazon.com says it shouldn't have to collect sales taxes from customers in states where it doesn't have a physical presence, the long-standing criterion for catalog and Internet sellers from a 1992 U.S. Supreme Court decision. It's been collecting local sales taxes in New York since 2008 while it uses that defense in its court battle. In Texas, Amazon.com has operated a distribution center in Irving since 2006 without collecting sales taxes from its Texas customers. Amazon.com says a subsidiary owns the distribution center, which exempts it from the Texas law. Amazon.com spokeswoman Mary Osako said the company has "no updates to offer on Texas or New York." And in Colorado, it's "still evaluating the legislation and our options." Texas officials say they're still working on it. "We can't talk specifics about an ongoing audit," said R.J. DeSilva, spokesman for the Texas Comptroller. "But for large companies such as this, audits could last longer because of the amount of documents that may need to be analyzed at different levels." Much work ahead A universal sales tax on Internet retailing "won't happen anytime soon," said Sucharita Mulpuru, vice president and principal analyst on e-retail at Forrester Research. "There are so many complexities and local laws around local retail sales taxes so it is hard to elevate the issue," Mulpuru said. The Streamlined Sales Tax Governing Board, the group of 23 states formed a decade ago, has been trying to tackle issues that would smooth the way for taxes to be uniformly collected. Texas isn't a member but participates as one of 20 advisory states. Six or seven working groups are meeting at any given time to iron out differences among states, said Scott Peterson, the group's executive director and former director of sales taxes for South Dakota. At a recent meeting, the agenda included the definition of bottled water. The group has defined most merchandise categories for sales tax purposes and has had to settle issues such as whether a Twix bar is a cookie and exempt from sales taxes or a candy that isn't exempt. "I think we're soon getting to a point where Congress will have to enact a law giving states authority to require out-of-state online retailers to collect local sales taxes," Peterson said. "We thought Congress would take action last year until we realized they decided they have more important things to do." http://www.dallasnews.com/sharedcontent/dws/bus/industries/retail/stories/DN-InternetTax_14bus.ART.State.Edition1.3dae195.html