Washington -– Connecticut shoppers who use eBay, Overstock and other online retailers will soon have to pay sales taxes on their purchases if the U.S. House follows the Senate in approving new Internet sales tax legislation.
The state treasury would also have a new revenue stream, estimated at about $150 million a year, to help with its embattled budget.
“It’s long overdue,” said Kevin Sullivan, Connecticut’s commissioner of revenue services. “This clearly will be welcomed revenue.”
Monday’s decisive 69-27 Senate vote showed the political clout of “bricks and mortar” retailers who believed their online competitors have an unfair advantage because they don’t have to collect sales taxes and remit them to the various states.
Under the Senate legislation, web retailers that sell more than $1 million a year to out-of-state buyers will be required to collect and remit state sales taxes.
Web-based retailers say it’s too burdensome to collect taxes for purchases in multiple states.
Sullivan dismisses that argument, saying big online retailers run sophisticated operations and can easily comply with a new tax law.
Right now, online consumers in Connecticut are required to pay sales taxes on their purchases when they fill out state tax returns. Few do.
Sullivan estimates the state collects only about $100,000 from individuals and businesses that self-report the sales tax.
Online retailers’ exclusion from collecting and paying sales taxes does not apply to sales in states the retailer has a distribution center or some other physical presence.
That means Amazon, who is building a distribution center in Connecticut, will start charging Connecticut’s 6.35 percent sales tax on its sales to state residents in December –- with or without a new federal law.
Amazon agreed to build a $50 million distribution center and collect taxes to avoid litigation with the state.
Sullivan estimates that Amazon alone will bring in $30 million in revenues to the state each year. And if Congress approves a final online bill, the total tally from web sales in the state would be about $150 million, Sullivan said.
Timothy Phelan, president of the Connecticut Retail Merchants Association, said Connecticut’s brick and mortar stores are strong supporters of the bill.
“From a retailer’s perspective, it recognizes the unfairness of the advantage the Internet retailers have,” Phelan said.
Sen. Richard Blumenthal, D-Conn. said he voted for the bill because it “levels the playing field for Connecticut retailers” and provides more revenues for the state. While the legislation had strong backing elsewhere in the U.S. Senate, not everybody loved the bill.
Senators representing New Hampshire, for instance, continue to wage war against the legislation. New Hampshire does not collect sales taxes and its lawmakers do not want Congress to force its online retailers to do so.
“As this legislation moves to the House, I will continue my efforts to protect New Hampshire’s online retailers from being forced to become tax collectors for other states,” said Sen. Kelly Ayotte, R-N.H.
A big problem for the legislation in the House is that some GOP lawmakers who’ve pledged not to vote for new taxes regard it as a tax increase. Grover Norquist, the anti-tax advocate, and the conservative Heritage Foundation are lobbying strongly against the bill.
In addition, House Speaker John Boehner, R-Ohio, has indicated he won’t support the legislation.
Phelan said he’s “hopeful the momentum we had in the Senate will carry over to the House.”