Thursday, April 28, 2011
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Online sales tax could go national

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[April 28, 2011]  SPRINGFIELD -- Illinois' online sales tax law may soon go national.

A plan called the "Main Street Fairness Act," proposed by U.S. Sen. Dick Durbin, D-Ill., would create a national law that forces online retailers to start collecting sales taxes on purchases made over the Internet. Amounts would be based on each state's existing sales tax rates.

"It is not only a confusing situation, Internet sales are firmly established across the United States. States, counties, cities are losing substantial amounts of revenue because of the current system," Durbin said.

Illinois sales tax rates are separated into three categories: food and prescriptions, 1 percent; vehicles, 6.25 percent; and other general merchandise, 6.25 percent. Local communities also can create additional taxes.

Durbin estimates that states could be losing a total $37 billion every year on purchases made through online retailers, with Illinois losing about $153 million.

"It's one of those things unreported. We're not sure what we're missing. I think it's going to be a minimum of over $100 million a year," Durbin said.

A 1992 Supreme Court case ruled that only retailers with a physical presence in the state had to collect sales tax.

In March, Gov. Pat Quinn signed Illinois' first online sales tax law, extending a company's physical presence to their online affiliates with offices in the state, thereby requiring them to collect sales tax and submit it to the state. As a result, major online retailers, such as, dropped their affiliates.

Brent Shelton, spokesman for Fat Wallet, an affiliate of and, said the company moved to neighboring Wisconsin to avoid being dropped as an Amazon affiliate. He said the effect of the proposed federal law on Fat Wallet largely depended on how its partners react.

"It wouldn't surprise me if some of the merchants aren't exactly for (it)," Shelton said.

Fat Wallet offers coupons to shoppers through affiliate partnerships with online retailers such as Amazon and eBay.

Brian Bieron, a lobbyist at eBay, said it was unfair to pit giant retailers that have actual stores and already have to collect sales taxes against the smaller businesses that don't.

"Forcing small businesses to take on the same costs and tax burdens as national retail businesses is unrealistic, unfair and will unbalance the playing field between giant retailers and small business retailers on the Internet," Bieron said in a written statement.

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Smaller brick-and-mortar stores, however, say the new state law -- and the proposed federal initiative -- will make it easier to compete.

"We know it's a competitive environment. We have to compete to be viable, but we should be on a level playing field with our online sellers," said Bob Thompson, owner of BikeTek, a bicycle shop in Springfield.

Lam Sargis, owner of Springfield Running Center, an athletic apparel and shoe store in Springfield, said he's had customers come into his store asking him to match prices they found online without the sales tax.

"Even though we give a little bit of a discount to locals, we cannot match the discounts given by the big companies that don't have the bricks and mortar," Sargis said.

But not all small-business owners agree.

Brandi Tolley, who runs a men's apparel eBay store, called the measure a "desperate" way for states to pull in revenue. Her store earns about $35,000 in sales annually, she said.

"A lot of us are small businesses. We don't have huge brick-and-mortar stores. We're just tiny businesses trying to make it," Tolley said.

"Is (being online) an advantage? Sure. But (stores) have that same opportunity. They could certainly shut down that brick-and-mortar and sell to people all over the world, just like the rest of us do," Tolley added.

Illinois shoppers are required by law to self-report sales taxes for online purchases that aren't collected by the retailer. The Illinois law and federal proposal would shift that responsibility from the customers to the retailers.

Self-reporting "creates a system which is very hard to administer across the United States, when it's up to the consumer to voluntarily step forward and declare that they owe sales tax in a given place," Durbin said.

Durbin expects to introduce the legislation by next month.

[Illinois Statehouse News; By MELISSA LEU]

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