EDITORIAL: Congress needs to clarify rules for online sales taxes [The Oregonian, Portland, Ore.]

(Oregonian (Portland, OR) Via Acquire Media NewsEdge) April 11--Congress has been reluctant to step into the political thicket of online taxes.

We understand the reticence to pass legislation that some will view as a tax increase, even if it only clarifies the rules for taxes that already exist. But it is becoming increasingly clear that Congress has two choices: Step in to develop clear rules. Or let states and giant online enterprises such as Amazon and eBay fight it out, then pick up the pieces afterward.

The stakes are too high for the passive approach.

Bills have been introduced in Congress to better define how states can apply sales taxes to online sales. Two prevailing arguments have emerged for such legislation: Businesses and consumers need rules they can understand, and state governments need the tax revenue to offset a decline in taxes from traditional retailers.

To date, states have been guided mostly by a 1992 Supreme Court ruling holding that mail-order merchants did not need to collect sales taxes for sales into states where they did not have a physical presence. But recently, several states have taken steps to increase collection of online sales taxes -- often by applying the loosest possible definition of "physical presence." Oregon has no sales tax, but the issue is far from irrelevant here. Not only do Oregonians shop online in large numbers, but the state has put considerable effort into encouraging the growth of Internet-related businesses.

Sen Ron Wyden, D-Ore., who co-authored the 1998 Internet Tax Freedom Act, is not among the legislators rushing to pass legislation to clarify the rules for online sales tax collection. But he says he has an open mind and that "from the beginning there has been broad agreement that the online world and offline world should be treated the same." It's easy to see why states with sales taxes are eager to collect from online retailers. A study by three professors at the University of Tennessee estimates that if online purchases were taxed at the same rate as traditional purchases in the state where the purchases were made, an additional $52 billion in taxes would have been collected from 2006-2011.

The current patchwork approach to online sales taxes also has hidden costs. Small businesses that sell products online have to hire advisers to help them navigate the legal and tax thicket. Large e-commerce businesses, such as Amazon, choose distribution-center sites based on sales-tax consequences, not efficiency. And traditional retailers not only lose sales, but also become free showrooms for online customers.

In many ways, Amazon is driving the current push for legislation. Its aggressive business practices, detailed last week in a four-part series in The Seattle Times, have angered competitors and states alike. Amazon Vice President Paul Misener in November testified to the House Judiciary Committee in support of legislation that would create what he called "an even-handed federal framework for state sales tax collection." Of course, since Amazon has operations in more states than most of its competitors, legislation exposing its competitors to those taxes is to Amazon's advantage. Still, the time is right for Congress to become involved.

Wyden says the stakes are high and this is an issue that Congress should "handle with care." We agree with Wyden's caution, but it's time for Congress to step in and clearly define the rules.

___ (c)2012 The Oregonian (Portland, Ore.) Visit The Oregonian (Portland, Ore.) at www.oregonian.com Distributed by MCT Information Services

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