WASHINGTON — It's enough to drive a local retailer nuts.
A customer walks in to check out the merchandise on display.
He grooves to the thumping bass from that new set of speakers and flips through the channels on the latest big-screen TV.
Then he whips out a smartphone, snaps a picture of the product's bar code and emails it to an online retailer such as Amazon.com. By buying the item online, the customer avoids paying any sales tax.
Bob Batt, executive vice president of the Nebraska Furniture Mart, said he's fine with competition, as long as its on a level playing field.
“This is not competition,” Batt said. “This is unfair.”
After years of complaints from brick-and-mortar retailers, Congress now looks to be moving on the Internet sales tax matter.
The U.S. Senate took up legislation last week that would require online retailers to collect sales tax on their transactions and turn over the money to the proper authority. It garnered such wide bipartisan support that it easily cleared the first few procedural hurdles, with yes votes from Nebraska's Deb Fischer and Mike Johanns, both Republicans, and Iowa's Tom Harkin, a Democrat.
Sen. Chuck Grassley, R-Iowa, voted against the bill, in part because he was upset that it did not come through the Senate Finance Committee.
Grassley said that he hasn't made a final decision on the bill but suggested that he could still be a no vote at the end.
“I don't believe that I ought to be voting for a bill that increases taxes,” Grassley said.
Proponents say that taxes aren't really being increased, because they are already owed. It's just that sellers are currently required to collect the taxes only if they have a physical presence in the jurisdiction to which they're shipping the product. Otherwise, it is the customer's obligation to report and pay the sales tax.
The problem: Almost no one does that.
A number of governors are pushing for the change, including Iowa's Terry Branstad, a Republican. The Iowa Department of Revenue made an early estimate that the legislation would increase revenue $24 million a year — although it actually would be less than that, because the estimate was based on a “small seller” exemption of $500,000 in annual sales; the proposed legislation sets the threshold at $1 million.
Nebraska Gov. Dave Heineman, also a Republican, has not taken an official position on the legislation.
A report from the National Conference of State Legislatures indicated that Nebraska loses $118 million a year on uncollected sales and use taxes, but another estimate, by the Nebraska Department of Revenue, using different assumptions, put the figure at $45 million a year.
There is resistance to the idea. Where proponents see a basic question of fairness, others see increased taxes and a compliance nightmare.
Conservative activists such as Grover Norquist have been pushing back against the legislation, arguing that it would expand the taxing reach of states.
“There are tremendous abuses that would flow from politicians taxing businesses that can't even vote against them,” Norquist said during a recent interview on Fox Business. “That's why the politicians at the state level love this. It's 'free money,' they think.
“But by opening it up, the voters in their states will get mugged by 49 tax collectors in the other states.”
It's unclear how such opposition to the measure could affect its prospects in the House. Most area congressmen — including Lee Terry and Jeff Fortenberry, both Nebraska Republicans, and Tom Latham, an Iowa Republican — indicated that they were withholding judgment for now.
Rep. Steve King, R-Iowa, sounded fairly positive about the legislation, however. He favors moving to a national sales tax anyway. Improving sales tax collection on Internet transactions would be an important building block for that.
Rep. Adrian Smith, R-Neb., said he hears from small businesses on both sides of the matter. Yes, some mom-and-pop stores are frustrated at the competitive disadvantage. But small businesses that rely on Internet sales worry that they will have to comply with many new requirements and have to figure out how to deal with thousands of tax jurisdictions.
Smith said the input he gets on the subject is split about 50-50, and he wants to continue studying the issue.
“I'm going to continue to ask the question of 'Why does the federal government absolutely have to get involved here?'” Smith said. “I hope we're not saddling the little guy with a huge burden that would just discourage economic activity.”
One of the biggest opponents of the legislation is eBay, which serves as an online marketplace for many retailers of all sizes. At a minimum, eBay is pushing to raise the small business exemption from $1 million in annual sales to $10 million.
Brian Bieron, eBay senior director of global public policy, said people aren't taking into consideration the many headaches that will come for small businesses that can't afford to hire an army of accountants and tax lawyers.
One Smith constituent, Rob Czaplewski of Grand Island, runs a side business through eBay, where he sells products for other people.
He worked on Smith's first campaign for Congress and recently urged the congressman to oppose the legislation.
Although Czaplewski would be covered by the bill's small business exemption, he worries about having to comply if his business takes off or if the threshold were ever lowered.
“It could complicate things, I think, for someone like me,” Czaplewski said.
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