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TMCNet:  Kentucky part of push to grab online sales tax

[May 01, 2011]

Kentucky part of push to grab online sales tax

May 01, 2011 (Messenger-Inquirer - McClatchy-Tribune Information Services via COMTEX) -- At first blush, it seems so simple. Kentucky has a 6 percent sales tax, and all retailers pay that same tax on covered items.

Not so, though, some say.

States are missing out on millions from purchases made via the Internet from companies that don't have a physical store or presence within their borders. That is the crux of the argument to get a federal law passed to require sales tax collections on Internet purchases.


For Kentucky, one study projects the 2011 tally will be between $98 million and $109 million in uncollected revenue from Internet sales made to its residents by companies without a physical presence.

Indiana says goodbye to between $174 million and $194 million from online purchases, according to a study by University of Tennessee Professor William Fox.

The talk about what to do about this tax issue is heating up as more states are joining what is called the Streamline Sales Tax Initiative.

And Illinois Democrat Senator Dick Durbin wants to see federal legislation passed to create the mechanism for the tax collection. He is pushing the Main Street Fairness Act. Similar legislation filed last year didn't pass.

Shoppers who are doing more and more online buying likely won't like paying the sales tax. But more and more "bricks and mortar" retailers are asking for the federal law to level the playing field, they claim.

Some analysts have suggested that the debate has been elevated at the national level because huge, national bricks and mortar retail stores like Wal-Mart and Target see the tax as a way to weaken online companies like Amazon.com who would be required to pay the sales tax.

Kentucky has been a member of the Streamlined Sales Tax initiative since October 2005.

"We are working on this," Rep. Rick Rand, the chairman of the appropriations and revenue committee in the Kentucky House of Representatives. "We know we're losing dollars. I think it's an issue of fairness. If we think it's reasonable to charge sales tax on products, then it should be fair." Kentucky entered into the initiative through the National Conference of State Legislatures that lobbies Congress for the national venue of requiring companies to collect state taxes where they do business.

Some companies are voluntarily collecting the tax. And some consumers are following the instructions on their tax forms and reporting their purchases.

The Kentucky Revenue Cabinet estimates the state is collecting $12 million to $13 million per year through the initiative.

Rand said not collecting the tax from Internet sales gives those online companies an advantage.

For example, let's say a consumer is buying a computer online and has narrowed the choices to two companies. If one collects the 6 percent sales tax and one does not, that is a price advantage.

"It definitely hurts Main Street," Rep. Brent Yonts said. "We're losing a lot of money. And the tax is already there. We're just not collecting it." Some states do not support the initiative, but 24 states have passed conforming legislation to simplify sales and use tax collection. These states now have the same rules to help these "remote sellers" do the collecting, and there is a central registration system where the retailers can register in all (24) states at one time.

The goal is to require these vendors in other states who are selling products in Kentucky to collect the state tax.

Maine does not support the national effort, Yonts said. That state is home to L.L. Bean, which does a huge catalog and Internet sales business.

Other state lawmakers from this region said they, too, support a more fair system.

"Conceptually, and in the big picture, I am for it," Sen. Joe Bowen said. "For the implementation of it, though, obviously there are some problems with that." Bowen said in a broader sense, the state needs a total overhaul and comprehensive tax reform that would result in an updated model that is more fair and more efficient.

Rep. Jim Glenn said the state is missing a huge block of revenue and is taking the right approach to join other states in addressing the collection issue.

"It's probably more economical and easier for the federal government to collect it and redistribute it to the states," Glenn said. "The discussion needs to be about what is the fairest and best way to do this." Rep. Tommy Thompson said the Streamlined Sales Tax initiative appears to be gaining momentum.

"The thing that is unfair about it is that someone from Kentucky can call a local vendor and get a lot of information about a product, and then goes on the Internet and buys that product," Thompson said. "They are able to make a better purchase because of the information they received from their local vendor. But a vendor outside of Kentucky gets the sale. The local business has to add on the sales tax and is at a competitive disadvantage." On balance, finding a way of collecting the tax on Internet sales seems the fair thing to do, he said.

"It's nice when people collect it and send it in voluntarily, but unfortunately, not a lot are going to do that," Thompson said.

Joy Campbell, 691-7299, jcampbell@messenger-inquirer.com To see more of the Messenger-Inquirer, or to subscribe to the newspaper, go to http://www.messenger-inquirer.com. Copyright (c) 2011, Messenger-Inquirer, Owensboro, Ky. Distributed by McClatchy-Tribune Information Services. For more information about the content services offered by McClatchy-Tribune Information Services (MCT), visit www.mctinfoservices.com.

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