Study shows retailers get $1B of sales tax back

[November 19, 2008]  LITTLE ROCK, Ark. (AP) -- Even as they struggle amid the slowing economy, some states are giving retailers back about $1 billion in sales taxes each year as reimbursement for acting as tax collectors, according to a study released Tuesday.

The Washington, D.C.-based watchdog group Good Jobs First, which is critical of government handouts to private enterprise, said 26 states allow for some kind of compensation to companies for collecting sales tax for the government. The study says 19 states do not make such payments, and five states do not impose sales tax.

An Internet sales tax bill before Congress also would provide some sort of reimbursement to companies, but the bill doesn't stipulate how much.

Group research director Philip Mattera said the issue is important because states' budgets are tightening in the slowing economy, making budget cuts a possibility, even as they are giving away much-needed revenue.

"We wanted to shine a light on a rather obscure aspect of state tax policy, particularly at a time when states are having a big fiscal crunch," Mattera said.

Illinois gives the most to companies at $126 million per year. Texas is next at $89 million, with Pennsylvania at $72 million and Colorado at $68 million.

States don't report how much individual companies take in, but Good Jobs First estimates that Wal-Mart Stores Inc., the world's largest retailer, receives $60 million per year for collecting sales taxes. The study cites Wal-Mart, which reported profit last year of $12.73 billion on revenue of $378.8 billion, as saying it took in $12.8 billion in sales taxes for states in 2007.

Wal-Mart didn't immediately return a call for comment Tuesday.

"You can see there is a general theme -- the impact that large retailers have on the fiscal health of states and fiscal health of governments around the country. We're concerned they're draining too much from the coffers," Mattera said.

During the eight-month study, Mattera and researcher Leigh McIlvaine evaluated the compensation programs of each state that offers a giveback plan. Mattera said some local taxing agencies offer similar breaks.

"We talked to the revenue department of every state to clarify what their practices are, how much it costs. There were a few states where we had to make estimates because they didn't have the figure we were looking for available," he said.

As for the bill before Congress, the study says states that have to adopt a reimbursement plan should limit the amount retailers can claim for themselves.

For years, and well ahead of legislation, Wal-Mart and its warehouse division, Sam's Club, have collected sales tax on Internet purchases.

Retailers are typically compensated by factoring a percentage of sales tax collected. Eight of the states allow less than 1 percent of tax collected to return to the retailer, while others go as high as 5 percent. Florida allows $360 per store. North Dakota allows a total of $1,020 and Michigan $240,000.

The group recommends that states which compensate retailers for collecting sales taxes take a fresh look at those policies because computerization has negated the argument that the more tax collected, the more it costs a retailer to handle. The group wants lower compensation limits in states, and also notes that sales tax revenue already is returned to many retailers through economic development incentives as communities compete to bring in new businesses.

Mattera singled out Sidney, Neb.-based Cabela's Inc. and Springdale, Mo.-based Bass Pro Shops, billed as destination outdoors outlets, for seeking large incentives before locating a new store. But the study estimates that Wal-Mart is the biggest recipient, taking in more than $70 million per year in subsidies, when economic development money is factored.

States that offer some sort of sales tax rebate to companies are: Alabama, Arizona, Arkansas, Colorado, Florida, Georgia, Illinois, Indiana, Kentucky, Louisiana, Maryland, Michigan, Mississippi, Missouri, Nebraska, Nevada, New York, North Dakota, Ohio, Oklahoma, Pennsylvania, South Carolina, Texas, Utah, Virginia and Wisconsin.

[Associated Press; By CHUCK BARTELS]

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