Pittsfield man joins Internet tax fray to make online merchants collect sales taxes
Joe Cortese, a Pittsfield-based coin and stamp dealer, is a founding member of a national group fighting a bill that would require online merchants to collect sales taxes. (THOMAS ROY/UNION LEADER)
Joe Cortese knows a few things about Internet sales.
A Pittsfield-based coin and stamp dealer, he started selling on eBay soon after the online sales giant was launched in the mid-1990s. He's the founder/chairman of the Professional eBay Sellers Alliance and co-founder/chairman of the eCommerce Merchants Trade Association.
So when opponents of online sales taxes decided to form a national coalition three months ago, they turned to Cortese to be a founding member. He signed on with "We R Here," which stands for Web Enabled Retailers Helping Expand Retail Employment.
The group's debut was well-timed, as efforts to force Web sellers to honor state sales taxes are picking up steam. Last Wednesday, Sen. Dick Durbin, D-Ill., second-ranking member of the Senate Democratic leadership, filed an amendment to the National Defense Authorization Act for 2013 that would attach his Marketplace Fairness Act to the national security legislation.
The act would enable states to compel online and catalog retailers - no matter where they are located - to collect sales taxes at the time of a transaction. States would be required to simplify their sales tax laws to enable collection and payment across the country. Twenty-four states have voluntarily adopted the simplification measures in anticipation of the law's approval.
States seek passage
On Wednesday, hundreds of state legislators, anxious for additional sales tax revenue, will converge on Capitol Hill to urge passage of the bill, according to the National Conference of State Legislators.
The Hill, a congressional newspaper with a special focus on business and lobbying, reported last week that supporters of the measure are increasingly confident they have the votes in the Senate if they can get the measure on the legislative calendar. The bill was introduced in the House of Representatives in July.
New Hampshire consumers would not be directly affected by a tax on Internet transactions because the state is one of only five in the country that does not have a sales tax, the other four being Oregon, Montana, Alaska and Delaware. But the state has a thriving online business community that feels seriously threatened by the proposal.
For example, if the proposal became law, a New Hampshire online retailer who sold a product to someone in Texas would have to charge the buyer the Texas sales tax in addition to the product's price. The tax portion of the sale would go to Texas.
Recent census data show that New Hampshire is in the top 10 nationally when it comes to online sales as a percent of all retail activity, at 3.10 percent, with 2,951 employees working for 191 different online retailers.
"The costs and complexity associated with collecting these taxes would put a damper on Internet sales," said Cortese. "I think merchants have enough to do in their daily workflow without having to collect taxes for 13,000 tax jurisdictions throughout the country. You are going to see online businesses lining up to close shop, rather than take on new employees, in the climate of risk this would introduce."
An uphill battle?
Cortese and like-minded online retailers realize they are now fighting an uphill battle.
"We're the underdog. No question about it," said Phil Bond, executive director of We R Here. "The big-box guys have been working on this for years at the state and federal level. These are huge companies with dozens of retained lobbyists working on it very hard, and the small guys don't have the resources to do that. So nine weeks ago, we put together this coalition."
Since then, Bond said, the group has attracted 10,000 members. "We are tapping into a community that felt left out and is now starting to realize they are threatened by this effort from the big-box stores that have been phenomenally successful in taking market share from the smaller retailers."
Cortese argues that companies doing millions of dollars in Internet sales across state lines are already equipped to deal with the law, and see its implementation as a way of driving out the little guy, increasing their market share even further. Amazon with its massive international infrastructure supports the bill, while eBay, which relies on millions of individual sellers like Cortese, opposes it.
The rift is evident in New Hampshire, where the state's Retail Merchants Association has been unable to develop a consensus on the matter.
"Our board, two years ago, voted not to take a stance on the issue," said Nancy C. Kyle, the association's president and CEO, explaining that the board is made up of small independent retailers and major corporations. "The major corporations all support this while the smaller board members feel that there should be an exception for states that do not have a sales tax."
The question of exemptions for the five states with no sales tax remains unresolved.
Even though Cortese's sales are just below the $500,000 threshold, and he is based in a state that could qualify for an exemption, he remains strongly opposed. "There are much larger questions at stake here than just my individual interest and concerns," he said. "This is something that, if implemented, would impact the entire economy."
Effect on Internet sales
Bond argues that the effect on Internet sales would be severe, for minimal gain to state coffers. About 40 percent of e-commerce taxes are already being collected, he said, because of activity by large companies.
The 60 percent left to be collected would only improve the revenue picture for states with sales taxes by one-third of one percent, he said.
"It is not really that big in the overall picture, but it is a matter of life or death to the small online retailer. We are trying to alert folks that this would be a good time to let their congressmen and senators know how they feel about this."
States have been unable to enforce their own sales taxes on sales by out-of-state catalog and online sellers since a 1992 Supreme Court decision that the Marketplace Fairness Act seeks to reverse. Backers of the measure say it would address the unfair advantage that online retailers have over local brick-and-mortar shops in sales-tax states.
Durbin's amendment may not make it onto the defense reauthorization bill, which passed the House overwhelmingly earlier in the year, but without any Internet tax amendment. Even if it is not included in the defense authorization bill, it is likely to come up for a vote in some fashion.
Lawmakers from New Hampshire have lined up against the measure.
"I strongly object to the consideration of the Durbin sales tax legislation and will do everything in my power to make sure this is not rammed through," said Sen. Kelly Ayotte. "This issue is about state sovereignty, especially for a non-sales tax state like ours. ... An attempt to rush this proposal through in the waning days of Congress would be just as objectionable as the proposal itself, particularly when we have a fiscal cliff looming over our economy."
Last fall, Ayotte introduced a bipartisan resolution with Sen. Ron Wyden, D-Ore., co-sponsored by Sen. Jeanne Shaheen, D-N.H., opposing any federal legislation that would give states the authority to impose new tax collecting requirements on Internet businesses and entrepreneurs. U.S. Rep. Charlie Bass, R-N.H., is the cosponsor of similar legislation in the House of Representatives.
Ayotte testified at a Senate Commerce Committee hearing in August, citing the Supreme Court's Quill v. North Dakota case in 1992, which held that requiring remote vendors to collect such taxes would place an unconstitutional burden on interstate commerce.
Bond hopes his group, with help from Ayotte, Bass and other sympathetic lawmakers, can at least delay action on the legislation until a new Congress is sworn in and the lobbying machine in favor of the bill has to go to work with a new cast of characters.
"By all indications, retailers are coming off of their best Black Friday and Cyber Monday ever," he said. "So it is puzzling that some in Congress are still insistent on helping big-box retailers crush their small-business competition by saddling them with new tax collection burdens."
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