March 12, 2003, 12:00 AM

A lawyer takes his crusade to collect online sales tax nationwide

Chicago lawyer Stephen Diamond, who initiated suits against online retailers in Illinois for not collecting sales tax, says he`s working with lawyers in 45 other states to bring similar actions against e-retailers.

Chicago lawyer Stephen Diamond, who initiated suits against online retailers in Illinois for not collecting sales tax, is taking his crusade nationwide, he tells InternetRetailer.com. "The states have been cheated out of huge amounts of money," he says. Diamond, who was recently joined by the Illinois State Attorney General in suing Wal-Mart Stores Inc., Target Corp., Office Depot Inc. and two smaller retailers to force them to pay uncollected back sales taxes, says he`s working with lawyers in 45 other states to bring similar actions against e-retailers.

Diamond, who filed his suits under the Illinois whistle-blower statute against Target in December 2001 and Wal-Mart in April 2002, is also going after Jo-Ann Stores and maternity retailer Mothers Work Inc. He contends that they all fail to collect sales tax for online sales even though they maintain a physical presence in Illinois.

In addition to the legal actions, Diamond says he`s working to persuade Illinois and other states to deny retailers the ability to participate in a tax amnesty program already being offered as part of the Streamlined Sales Tax Project. The SSTP reports that 37 states and the District of Columbia have approved the amnesty program.

The amnesty program is not available to retailers who have already been cited in legal actions for not complying with existing tax-collection laws. "It wasn`t intended to give freebies to anyone already under litigation or a collection action," says Illinois State Sen. Steven Rauschenberger, who worked on developing the amnesty program as well as the broader Streamlined Sales Tax Project, which is designed to make it easier for retailers to collect tax from multiple states. Because Illinois has yet to sign on to the SSTP (though Rauschenberger predicts it eventually will) any retailers cited now in the lawsuits brought by Diamond would not be able to participate in the amnesty program in Illinois, Rauschenberger says.

Rauschenberger, a former retailer of home furnishings, says the amnesty program is crucial to getting retailers to voluntarily collect sales tax. The SSTP hopes to get a federal mandate authorizing states to force collection of sales tax across multiple states, but federal action is not expected until next year, if then.

Walmart.com and Target and other retailers began collecting sales tax in February, participating in the amnesty program in the states that offer it. A Wal-Mart spokeswoman says Walmart.com denies that it broke the law in Illinois. Target and Office Depot did not return calls for comment.

Existing state laws, including those in Illinois, require consumers who purchase goods online to directly remit sales tax themselves, though consumers rarely do, state officials say. Diamond says he submitted his own tax when he made purchases on Target.com and other sites when gathering evidence for his lawsuits. Meanwhile, under the terms of the Illinois whistle-blower statute, his law firm, Beeler, Schad & Diamond, stands to earn up to 25% of any recovery Illinois realizes from the lawsuits.

A study by the University of Tennessee estimates that states forfeited $13.3 billion in sales tax revenue in 2001, a figure that will rise to $45.2 billion in 2006, because of uncollected online sales tax. At the same time, the study figures that states are already facing a combined budget shortfall of $68.5 billion for the 2004 fiscal year.

 

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