Analysis: Hurdles exist to taxing online sales

By Jack Elliot Jr./The Associated Press

JACKSON — The next time you’re talking with candidates for the Legislature, ask if they think everyone should pay their fair share of sales taxes.

Then, ask if that applies to folks in Mississippi who buy online.

Then, ask why the Legislature hasn’t done anything.

If they know — and that’s a big if — they likely can’t explain it in laymen’s terms.

Just know that implementing an online sales tax requires states to jump more hurdles than you’d find in an average steeplechase.

Or, as Mississippi Department of Revenue spokeswoman Kathy Waterbury, who gets asked about it a lot, says: “The answer to the question is not a simple one; the response usually creates more questions.”

“I’m afraid too many believe that there is an easy fix to collecting online sales tax,” she said.

States want residents to pay sales taxes on all the things they buy. Online shoppers, this means you.

States are looking at various means to address the issue, especially in light of tight budgets and without violating a 1992 U.S. Supreme Court ruling that prohibits a state from forcing businesses to collect sales taxes unless the business has a physical presence, such as a store, in that state.

States are trying to get around that restriction by enacting laws that broaden the definition of a physical presence. Retailers are resisting becoming as tax collectors.

The Supreme Court ruling has meant that Wal-Mart Stores Inc., based in Bentonville, Ark., would collect taxes from shoppers in all states with sales taxes, whether those shoppers buy items on or off the Web, because it has stores nationwide.

But Amazon, for example, based in Seattle, wouldn’t collect taxes from Mississippi residents because it doesn’t have a presence here.

Some states are now saying a retailer has a physical presence when it uses affiliates — people and businesses that refer customers to the retailer’s website and collect a commission on sales. These affiliates range from one-person blogs promoting the latest gadgets to companies that run coupon and deal sites.

Illinois passed a law requiring Internet companies with affiliates in that state to collect taxes on sales to Illinois customers. New York, North Carolina and Rhode Island have already adopted similar laws.

In Colorado, a law requires online retailers to either collect the tax or send customers an annual notice letting them know how much they owe their state. Retailers would also have to report that to Colorado officials.

Here, in a recent editorial, The Mississippi Press in Pascagoula said collecting the sales tax would create more money for public services. The editorial noted that online retailers oppose such laws because they use their tax-free status as a marketing tool.

“It’s unfair to local retailers, who must collect sales taxes from customers. These businesses support state and local services with their tax collections, and they deserve to be on a level playing field with Internet retailers,” the editorial said.

Waterbury said about 1,600 online sellers voluntarily collect Mississippi sales tax, which brought in about $36 million in fiscal year 2010.

Congress could give states authority to require tax collection by out-of-state retailers. Efforts have stalled because, some say, Congress is being asked to pass legislation where they could be criticized as imposing a new tax.

A group of states also came up with the Streamlined Sales Tax Agreement, an attempt to create some levels of uniformity to ease the burden for national online merchants to collect the sales taxes.

Waterbury said adopting the SSTA requires states to rewrite the sales tax laws. Waterbury said Mississippi would not pick and choose specific parts of the agreement to apply. She said the requirement for a uniform set of definitions and rules is all or nothing.

Waterbury said the Legislature would have to look at all tax rates, exemptions and exclusions. She said that could mean some taxpayers could pay more; others, less. She said some cities, which get back every year a portion of the sales tax, could receive less money; others, more.