States seek federal aid to corral Internet tax

WASHINGTON — Hungry for revenues and protective of local business, a number of states are getting behind a congressional effort to give them authority to collect taxes on the sale of products bought elsewhere over the Internet.

States say they will lose nearly $19 billion collectively because they can't force online retailers to collect and remit state sales taxes unless those businesses have a physical presence in that state, such as an office, store or warehouse. In its 1992 decision limiting states' authority, the Supreme Court held that it was difficult and expensive for businesses to determine just what should be collected because of complicated tax rules that varied from one state to another.

But a bill introduced in Congress this month would allow those states to require tax payments, provided they have adopted a uniform set of rules to streamline collection. To date, 24 states have done so, and backers predict others would if the bill passed.

More than that, said Rep. Bill Delahunt, D-Mass., who is sponsoring The Main Street Fairness Act of 2010, it would eliminate the price advantage many online retailers now enjoy over their mom-and-pop competitors, which collect sales tax on every purchase.

He has some bipartisan support.

"The small-business owners in our communities that operate in the downtown, that sponsor the Little League teams, that sponsor community activities, are currently being disadvantaged," said Christopher Rants, an Iowa Republican state lawmaker who attended a Capitol Hill news conference Thursday with Delahunt.

Some online retailers, notably eBay, oppose the bill and say proponents are overstating its benefits while underplaying the administrative costs — as much as 17 cents for every dollar in sales —that businesses would incur to calculate, collect and remit the taxes.

They say the revenues that states are missing out on are closer to $3 billion, not $19 billion, and that tax collections are on the rise as more online sales come from retailers that have stores in many states.

Similar legislation has been proposed in previous years to exempt businesses with up to $5 million in online annual sales to out-of-state buyers. This version essentially would reduce that exemption to $100,000, ensnaring far more small merchants.

"Those are the businesses that get crushed by the Delahunt bill," said Steve DelBianco, executive director of NetChoice, an online-business advocacy group whose members include eBay. "For the first time in 10 years, the federal bill to overturn (the Supreme Court ruling) has abandoned small-business protections."

Delahunt conceded that chances of passing the bill are slim, given that Congress is heading into an election season in which little legislation of any sort is expected to be approved.