Small retailers say sales tax break for online sellers unfair

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WASHINGTON - Morgan Hardy watched in frustration as a man walked into his comics and games shop last week, picked out what he wanted to buy, and then used his cell phone to order the merchandise on eBay.

By ordering online, the customer was able to avoid paying the 9.25 percent sales tax he would have been charged if he'd bought the goods in Hardy's store.

"Customers are getting more brazen," said Hardy, who owns Organized Play in Knoxville, Tenn. "They have to. It's tough times for everybody."

Hardy and other small retailers from across the country are lobbying Congress to fix what they say is a loophole that gives large online companies a significant price advantage over smaller mom-and-pop businesses.

Remote sellers, such as online retailers, are not required under federal law to collect and remit sales taxes on goods sold in a particular state unless they have a physical presence, or nexus, within that state.

Bricks-and-mortar businesses, on the other hand, must collect the taxes. They argue the policy gives giant online retailers a price advantage and makes it impossible for small companies to compete.

Nationwide, states are losing hundreds of millions of dollars as more and more commerce has shifted from Main Street to the Internet, say advocates of the so-called "e-fairness" movement. Small businesses say they are losing sales as customers order merchandise online to avoid paying the taxes

"There needs to be a level playing field," said Scott Schimmel, owner of Bliss and Bliss Home, which has two furniture stores and a women's apparel and accessory shop in Knoxville.

On Wednesday, U.S. Reps. Steve Womack, R-Ark., and Jackie Speier, D-Calif., announced plans to file legislation that would give states the option of requiring online retailers to collect and remit state sales taxes, even if they don't have a presence in that state.

The legislation, called the Marketplace Equity Act, would exempt out-of-state vendors that have gross annual receipts of less than $100,000 in the state or $1 million nationally. Womack said the exemption is included to ensure that sales tax collection is not overly burdensome on companies with a small online presence.

Past efforts to enact similar legislation have come up short. But Womack and Speier believe their proposal stands a better chance because it gives states the authority to order collection of the taxes, but does not require them to do so.

"Whether buying on the Internet or Main Street, sales tax is supposed to be paid," Speier said.

(Contact reporter Michael Collins at collinsm(at)shns.com)

(Distributed by Scripps Howard News Service, http://www.scrippsnews.com)