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Maine's Small Retailers Push for Bill Aimed at Closing Sales Tax Loophole
02/28/2012   Reported By: Tom Porter

Many of Maine's retailers are getting behind legislative efforts to impose what they call a "level playing field" with their online competitors. Currently online retailers such as Amazon or eBay are not required to collect sales taxes in states where they do not have a physical presence. Many of their "bricks and mortar" competitors say this puts them at a disadvantage when it comes to trying to compete.

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Originally Aired: 2/28/2012 5:30 PM
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Longfellow Books, often described as a "fiercely independent bookstore," has been doing business in downtown Portland for 12 years. During that time it has, of course, been collecting state sales tax, now standing at 5 percent, on all items sold.

And that, says co-owner Christopher Bowe, is how it should be. "We just have to collect the sales tax," he says. "That's just part of the--you know--the bargain of being in a democracy."
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Under current law, online purchases are theoretically subject to sales tax.  The problem is, the seller is not required to collect it. So every time you buy something online, you're proabably breaking the law--unless you keep track of those purchases and pay a so-called "use tax" once a year.  

Bowe says all he wants is a level playing field, where online retailers pay the same dues as everyone else. "And I also want Maine to collect the sales tax that it's owed because, you know, we don't have enough money for teachers or roads or bridges as it is," he says.  

Surprisingly, perhaps, Amazon actually agrees. "For more than a decade Amazon has supported a fair national approach to sales tax collection," says Amazon spokesman Scott Stanzel.  Stanzel says while the company opposes state-level efforts to collect online sales tax, it would welcome a national, streamlined solution.

"We believe that by enacting a simplified and equitable framework, Congress can address the needs of retailers, of states and of consumers, so we're working with a broad array of groups, organizations and businesses to push members of Congress to enact legislation this year," he says.

By coming out in support of a Senate bill known as the Marketplace Fairness Act, Amazon created something of a rift among online retailers, many of whom remain opposed. Brian Bieron, senior director for U.S. Government Relations at eBay, said in a statement that "it just doesn't make sense to expand Internet Sales Taxes at a time when our economy is already in crisis, because it will hurt entrepreneurial small business retailers and kill jobs."  

Pete Sepp is executive vice-president at the National Taxpayers Union, which also opposes the legislation. "The Marketplace Fairness Act takes precisely the wrong approach in dealing with the question of how states can rationalize their tax systems for sales occuring beyond their borders," Sepp says.

Sepp says the best, and simplest, solution would be to have the sales tax paid only to the state where the retailer has a physical presence--like a warehouse, or corporate offices. "Thus we would have none of this cross-border taxation collection that the Marketplace Fairness Act proposes," he says.

The solution currenly before the Senate, he says, would suppress what he calls beneficial tax competition between the states and end up costing the taxpayer more money.

Maine Republican Sen. Olympia Snowe issued a statement Monday afternoon saying she's "very pleased" with the progress of the bill, but notes there are still issues to be resolved, including the question of small business exemption. The bill proposes allowing online retailers with sales of less than $500,000 to be exempt from collection requirements.

Maine's 1st District Democratic Congresswoman Chellie Pingree, meanwhile, co-sponsored a House version of the bill last fall. She says the growing popularity of online retailers is taking its toll on many businesses.  "And the fact that they don't have to pay sales tax really is putting our local businesses and our small businesses at a disadvantage," she says.

According to at least one report, the situation as it stands is costing the government millions in lost revenues. The Hudson Insitute, a non-partisan policy research group, says up to $330 billion in sales is going untaxed due to this so-called loophole.

Curtis Picard is director of the Maine Merchants Association, which supports all efforts to collect online sales tax. He says Maine is losing tens of millions of dollars in taxation revenue every year.

"I've seen a couple of different figures:  I've seen it as low as about $30 million in lost revenue, upwards of $60 million," Picard says. "Where the exact number is we're not quite sure yet, but let's go with the more conservative $30 million--that's still a good chunk of change that the state could certainly use."

Apart from the efforts in Congress, Picard says there's also a chance the issue will be addressed by the state Legislature this session as a budget amendment.

Meanwhile, Maine retailers keenly await a statement from Republican governor and former retail boss, Paul LePage, who has not yet taken a position on the Marketplace Fairness Act.

Photos by Tom Porter.

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