Washington • The head of Utah-based Overstock.com argued before Congress on Wednesday that requiring online retail outlets to collect taxes in 45 states would be overly burdensome and benefit only big-box retailers.
Congress is considering changing a law that requires an online operation to collect sales tax only if it has a brick-and-mortar shop in the state. But traditional retail outlets, who collect that tax at all their stores, say the system creates an unfair marketplace.
The issue has divided online retailers. Executives from eBay Inc. and Overstock.com cautioned lawmakers against passing a measure that would harm small businesses or saddle online retailers with added expenses. Amazon.com's vice president for global public policy urged Congress to set standards for collecting state sales taxes from online commerce. Any exceptions to the tax should be kept "very low" for fairness reasons, Paul Misener said.
They all spoke Wednesday at a House Judiciary Committee hearing. Amazon, the largest online retailer, has long battled attempts by states to levy sales taxes on Internet transactions. Now it's backing efforts to create a federal standard for states to collect sales tax on online purchases.
For Patrick Byrne, chairman and CEO of Overstock.com, it all comes down to the big-box stores.
"Big box has become 87 percent of brick-and-mortar [stores] and what is happening here is they are attempting to pull up the drawbridge behind them," Byrne told the committee, which is considering three measures that would require outlets such as Overstock to collect sales tax for every purchase.
Byrne says such a move could mean his company would have to deal with 10,000 separate tax rates across the country, shifting the burden of collecting tax from the government to private business. Software, he said, doesn't exist that can handle all the nuances of tax systems nationwide.
"They tell you this exists; it's vapor-ware," he said, noting that no software can constantly account for a city, say, having a back-to-school sales tax holiday or a transit agency tweaking its rate.
On the other side, John Otto, a certified public accountant and Texas House representative, says that Congress is picking winners and losers in the marketplace by not making it a fair system.
"How is a retailer, such as Bed, Bath & Beyond, JC Penney or Walmart supposed to compete with Amazon.com, Bluenile.com or Overstock.com when the latter enjoy anywhere from an 8 percent to 10 percent discount due to not having to collect sales tax?" Otto asked.
Consumers are supposed to pay tax on their own for purchases made online from another state, though few actually do so. And that loss is adding up for taxing entities.
In 2005, e-commerce purchases constituted $87 billion in retail sales; this year, analysts estimate online sales will double, according to Indiana state Sen. Howard Kenley, citing Department of Commerce statistics. Online sales are increasing faster than in-store numbers, Kenley added.
"Retailers across this country often find themselves acting at the display case for consumers who come in and try out the product but then go home and buy it online," Kenley said.
The Judiciary Committee hearing was meant only as a fact-finding exercise, and legislation to tax Internet sales has yet to move out of the panel this session.
Bloomberg News contributed to this story