A federal sales tax law would hit hundreds of Top 500 e-retailers

Only 112 of the Top 500 retailers now collect sales tax.

Paul Demery

With the U.S. Senate’s passage this week of long-awaited sales tax legislation, the effort to broadly expand the number of retailers subject to tax collection responsibility has proceeded further than ever before. If the measure, entitled the Marketplace Fairness Act, passes the House of Representatives and is signed into law, it could bring a significant change to the way many merchants operate if they sell into states outside of their own.

As many as 388 of those merchants are in the new 2013 edition of the Internet Retailer Top 500 Guide to online retailers. That’s because there are 388 Top 500 retailers who don’t already collect sales tax in all of the 45 states with a sales tax law.

There are 19 merchants that don’t collect sales tax in any states, in some cases because the items they sell, such as contact lenses, are not subject to sales tax. How they’re treated would depend on how the legislation acts to harmonize sales tax laws across the 9,600 jurisdictions that impose sales tax in the U.S.

President Barack Obama has come out in favor of the bill. But its fate in the House is uncertain. Speaker of the House John Boehner (R, OH) said on a Bloomberg Television news report yesterday, a video of which is on the Internet, said he would “probably not” support the bill because states have not done enough to simplify tax collection, leaving small retailers with a “big burden.” Rep. Bob Goodlatte, a Virginia Republican who chairs the House Judiciary Committee, which will consider the bill, has expressed reservations about the measure.

The Senate legislation grants authority to states to mandate sales tax collection by all retailers that do at least $1 million in remote sales, or sales in states where they don’t have a physical presence like stores or distribution centers. Under existing federal law, all retailers are exempt from collecting sales tax in states where they have no physical presence.

If it becomes law, the legislation wouldn’t directly impact the operations of more than a fifth of Top 500 retailers, or 112, who already collect tax in all 45 states with a sales tax. Among the 161 retail chains listed in the Top 500, 66 already collect tax in all 45 states; among 184 web-only retailers in the Top 500, 13 collect tax in all 45 states.

That leaves scores of merchants of all types within the Top 500 who would be subject to new tax-collection duties if the Marketplace Fairness Act becomes law.

Among retail chains, 95 Top 500 retailers collect from fewer than 45 states; there are 16 who collect in five or fewer states, including 10 who collect in only one.

Among web-only Top 500 retailers, 155 collect in three or fewer states.

Retailers express varying opinions on the impact a new sales tax law would have on their business as well as on the retail industry as a whole.

Proponents, including Amazon.com Inc. and large retail chains—many of whom already collect in most if not all sates with a sales tax—say the law will establish a fairer way for all retailers to compete for customers and grow sales at a time when consumers are shopping across online and offline retail channels. “Retailers compete on many different levels, distribution channels and fronts, including service and selection, but they cannot complete on sales tax,” says Stephen Sadove, chairman and CEO of retail chain Saks Inc., No. 37 in the Top 500. “Congress needs to address this sales tax disparity and allow retailers to compete freely and fairly.” Sadove is also chairman of the National Retail Federation, an industry organization that supports the legislation. Amazon is No. 1 in the Top 500.

But Jonathan Johnson, a senior executive of Overstock.com Inc., No. 31 in the Top 500, says the Senate legislation leaves retailers open to uncertainty in how states could enforce a final sales tax law. He notes the Senate version of the Marketplace Fairness Act, under the bill’s Section six on preemption, says the federal legislation would not preempt any existing state laws that conflict with the federal law. That leaves the door open, he adds, for online retailers to face the costs of abiding by additional versions of tax collection and remittance rules that could raise operating costs and make it more difficult to compete on price.

Other Top 500 retailers either didn’t immediately return a request for comment or declined to discuss the impact on their business of a new sales tax law. A 2010 study by e-commerce technology company GSI Commerce, now a unit of eBay Inc., found that one of its client retailers took a 12% hit to sales after it started charging sales tax. But a study last year by Forrester Research Inc. and Bizrate Insights found that only 8% of online shoppers say sales tax makes a big difference in whether they buy online.

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Amazon.com Inc., Bizrate, Forrester Research, House Judiciary Committee, Marketplace Fairness Act, National Retail Federation, online sales tax, President Barack Obama, Rep. Bob Goodlatte, Rep. John, Rep. John Boehner, Saks Inc., Stephen Sadove, Top 500 Insider, U.S. Senate