The General Assembly’s tax-writing committee once again is trying to force online retail giants to collect state sales taxes by targeting their Connecticut-based affiliates.
But both advocates and opponents of the Connecticut bill conceded that regardless of whether it is enacted here or not, some businesses will be harmed, and that the only equitable solution lies with the federal government.
“We have to stand up to this and close this loophole,” added Rep. Patricia Widlitz, D-Guilford, co-chairwoman of the committee and another supporter of the bill. “I feel very strongly that we need to take a stand.”
The “loophole” Widlitz referred to involves the 6 percent sales tax Connecticut levies on most transactions, and the fact that most online retailers do not collect and forward the tax to the state. The U.S. Supreme Court ruled in 1992 that a state cannot force businesses to collect sales taxes unless they have a physical presence within that state.
Consumers still are obligated to report their online purchases and pay any sales tax owed through their annual income tax filings, but lawmakers concede that relatively few households actually do so.
While the sales tax raised just under $3.1 billion last fiscal year, less than $8.3 million of that involved online sales later reported and paid through consumers’ income tax filings, according to the Department of Revenue Services.
In all, states lose a total of $7 billion a year in sales tax revenue, according to an analysis by the Center on Budget and Policy Priorities, a nonprofit fiscal and public policy group based in Washington, D.C. Amazon.com is one of the nation’s largest online retailer with thousands of affiliates nationwide, the center says.
Advocates of the bill contend neighborhood book stores and other small businesses, which must force their customers to pay sales tax, simply cannot compete with Amazon.com and other major online retailers.
Suzanne Staubach, manager of the University of Connecticut’s Co-Op Bookstore on its main campus in Storrs, recently told lawmakers the story of a mother who read a child’s storybook to her young son in the store, but didn’t purchase it. “He loved it. He wanted to keep it,” Staubach testified. “But I heard her say, ‘Mommy will order it on the computer for you, honey.’”
The bill adopted in committee Thursday hinges on sales affiliates, local companies that receive a small commission for redirecting customers to the retailer’s web site. Any firm with more than $2,000 in annual sales generated through its Connecticut affiliates effectively has a “nexus” or physical presence in the state, according to the bill, and therefore must collect and report sales tax.
Amazon.com did not respond Thursday to an invitation to comment. The online retailer is challenging the New York law in court, but has stopped doing business with thousands of affiliates both in that state and in others, such as Colorado and Rhode Island, where similar measures were adopted.
Amazon sent the Connecticut legislature a letter last year threatening to do the same here if a similar statute is enacted. And though the Finance panel adopted a similar bill last year, the full legislature opted not to act on it.
“They’re kind of dictating to us right now. They’re really muscling us around,” said Sen. Tony Guglielmo, R-Stafford, a supporter of the measure. “They’ve got to be having an effect on all of the brick-and-mortar stores here in Connecticut.”
But others argued that confronting Amazon and other retailers head-on is not the best solution.
“We heard from companies in Connecticut that said ‘Amazon will shut us down,’” said Rep. Sean J. Williams of Watertown, ranking House Republican on the Finance committee, who said he’s convinced adopting such a law now “is basically throwing up a Berlin Wall” between Amazon-affiliated companies and the Connecticut residents who need the jobs they offer.
“There is an inherent inequity in the law and I’m not happy to be in this situation at all,” added Williams, who voted against the bill but said he sympathizes with small businesses being harmed by the status quo.
Rebecca Madigan, executive director of the southern California-based Performance Marketing Association, testified that nearly 2,800 Connecticut companies are affiliated with online retailers such as Amazon, Google, Yahoo and eBay, and would likely be dropped if such legislation were enacted.
“The state will gain no new sales tax revenue and will devastate 2,800 businesses in the process,” she said.
Williams, Widlitz and Guglielmo all said the ultimate solution rests with Congress, which has authority to impose a nationwide mandate on all online retailers to collect and remit sales taxes.
Bonnie Stewart, vice president and tax specialist for the state’s primary business lobby, the Connecticut Business and Industry Association, echoed that position, noting that the CBIA has taken no position on the bill.
“We just don’t have enough information,” she said, adding it is clear, though, that some businesses face harm if the bill is adopted, and others are being harmed without it.