WASHINGTON — Momentum appears to be building in Congress to allow states to collect taxes from online retailers, closing a loophole that costs Maine tens of millions of dollars and that critics say hurts traditional stores.
On Monday, a Senate bill to allow states to require larger retailers to collect sales taxes for online purchases passed its first procedural hurdle. Maine Sens. Susan Collins and Angus King supported the measure.
While some senators oppose the bill — including both senators from sales tax-free New Hampshire — Monday’s 74-20 vote was seen as a key test for legislation long sought by “mom and pop” stores as more and more Americans shop online.
“It provides fairness,” said Curtis Picard, executive director of the Retail Association of Maine. “We want to level the playing field between bricks-and-mortar retailers and those that sell online.”
Under a 1992 U.S. Supreme Court ruling, a state can require a retailer to collect sales taxes on out-of-state purchases only if the retailer has a physical presence in the other state.
Buyers are supposed to declare the purchases and pay the taxes to their home states, typically through their income taxes. But statistics indicate that only a small percentage of taxpayers comply.
In 2011, about 9.5 percent of Maine tax filers reported and paid “use tax” for out-of-state purchases. That brought in about $2.8 million in revenue, according to Maine Revenue Services.
Estimates vary for how much Maine would receive if Congress authorized tax collections from online and catalog purchases.
Maine Revenue Services pegs it at between $15 million and $25 million a year. A study last year by University of Maine economist Todd Gabe put the figure at between $18 million and $28 million.
Gabe’s study was done for the Retail Association of Maine and the Maine State Chamber of Commerce.
The current Senate bill would exempt businesses with less than $1 million in out-of-state sales. That exemption is double the amount proposed in a bill last year and appears to have added bipartisan support.
The bill has the support of Amazon.com, the nation’s largest online retailer, but is strongly opposed by eBay.com, which has been urging users to voice their opposition to members of Congress.
Maine’s largest and best-known online and catalog retailer, L.L. Bean, is closely monitoring the debate in Congress. L.L. Bean collects sales taxes from buyers who live in Maine and the other eight states where the company operates stores.
“We do not oppose the legislation that is being considered,” said Carolyn Beem, spokeswoman for the Freeport-based retailer. “We are prepared to (collect taxes) at the same time that all other remote sellers are required to do so.”
L.L. Bean has expressed concerns that the implementation time line in the bill is unrealistic, given the enormous amount of coding and programming that would be required to collect state and local taxes across the nation, Beem said.
“We think they are underestimating the complexity of it,” she said.
Jennifer Johnson, co-owner of the much smaller Maine-based Johnson’s Sporting Goods, sees and feels the competition from online sales regularly, thanks in no small part to the rise of “smartphones.” The challenge is particularly acute when it comes to costly scuba gear.
As an example, Johnson said a dry suit can cost from $1,000 to $3,200. Some customers will come into Johnson’s Sporting Goods — which operates stores in Brunswick, Portland and Rockland — to inspect or try on a piece of equipment, then use their smartphone to check prices online.
Johnson said her stores are at a disadvantage because they compete against much larger retailers that can buy in bulk, and those retailers don’t charge sales taxes. The result, she said, is that her store has become “a showroom” for some buyers.
“They touch it, feel it and then go online and buy it,” Johnson said. “Everybody is trying to save a penny. However, the showroom where they went and tried it on may not be there in the future.”
Not everyone agrees that Congress should authorize states to collect additional taxes.
“Higher taxes right now are not needed in this economy,” said J. Scott Moody, CEO of the Maine Heritage Policy Center, a conservative think tank. Moody said Mainers are tempted to shop online or in New Hampshire because Maine’s taxes are too high.
“As a state, I would say we need to address the high tax burden,” Moody said.
The issue often falls less on party lines than on geographic ones. Collins, a Republican, and King, an independent, are co-sponsors of the Senate bill.
“The Marketplace Fairness Act is about just that, fairness,” King said in a prepared statement. “A small ‘mom and pop’ business shouldn’t be at a disadvantage to large online retailers who do not have to levy sales taxes in states where they don’t have a physical presence.”
Democratic U.S. Rep. Chellie Pingree and Republican Gov. Paul LePage — a former general manager of the Marden’s retail chain — also support allowing states to collect sales taxes on Internet purchases. A spokesman for Rep. Mike Michaud said he is still reviewing the issue.
New Hampshire Republican Sen. Kelly Ayotte and Democratic Sen. Jeanne Shaheen oppose the bill, saying it would burden retailers in states that don’t charge sales taxes.
Both fought unsuccessfully to slow the fast-tracked bill, which bypassed the Senate Finance Committee, chaired by Democratic Sen. Max Baucus of Montana, an opponent whose state has no sales tax.
“I will continue to use every tool at my disposal to stop this bill, which should go through the committee process and be revealed for what it is — a massive power grab that will turn online business owners into tax collectors for other states,” Ayotte said in a prepared statement.
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