By Alex Daniels
WASHINGTON - Emboldened by action in the Senate, Rep. Steve Womack is taking another crack at legislation that would help states collect taxes on Internet sales.
The bill is designed to help states collect some of the billions of dollars in taxes on online sales that go uncollected each year.
When Womack, R-Ark., pushed for similar legislation last year, the House held hearings on it, but never brought his bill up for a vote; some Republicans told the House Judiciary Committee that the bill amounted to a tax increase. The Senate never voted on the bill.
This year, Womack says, there's stronger support for the proposal.
In March, the Senate overwhelmingly approved an amendment to a nonbinding budget resolution that was designed to improve states' ability to collect online sales taxes. The amendment sailed through on a 75-24 vote, with both of Arkansas' senators voting "aye." The Senate amendment didn't specifically mention Internet taxes; instead it spoke about allowing states to collect taxes on "remote sales." But Womack sees the vote as a green light on taxing online commerce and predicted the Senate vote would resuscitate efforts in the House.
"The vote in the Senate put new life into the effort in the House," he said. "The Senate vote gave some of my colleagues cover. When you get 75 votes in the Senate, that's a lot of cover." Womack said shoppers often check out merchandise in local stores, and then make their purchases on the Internet. Although taxes on those sales are supposed to be paid, most shoppers don't pay them. Womack's bill would give states that had adopted a simplified sales tax remittance process - by, among other things, creating a single entity to handle tax processing and audits and by providing free software to Internet sellers to compute taxes owed - the authority to require Internet sellers in other states to remit sales tax payments on items purchased by Arkansas residents.
In an effort to protect smaller Internet retailers, his legislation would exempt Internet retailers with less than $1 million in national sales from having to collect the taxes.
The measure would hurt businesses, said opponents of the bill, including Bartlett Cleland, policy counsel with the Institute for Policy Innovation, a conservative advocacy group in Lewisville, Texas.
He said businesses will shoulder the burden of increased audits and additional tax payments that should be collected by states "who can't figure out how to clean up their own messes internally" and collect the tax from customers.
"It's technically not a tax increase, but there will be an increased cost" for businesses, he said.
If passed, the bill would "unbridle" states from geographic tax boundaries, said Andrew Moylan, senior fellow at the R Street Institute, a Washington advocacy group that promotes free markets and smaller government.
"An Arkansas business would have to answer to California revenue authorities," he said.
Womack's claims that the nonbinding Senate vote will influence members of the House are simply "wishful thinking," Moylan said.
The Senate action lacks the force of law, he noted, and predicted that a stand-alone bill on Internet taxes would fare poorly in the Senate.
The Senate amendment called for a "deficit-neutral reserve fund" that would take into account increases in revenue that come from "allowing States to enforce State and local-use tax laws and collect taxes already owed under State law on remote sales." "That's a very generic statement," Moylan said. "It doesn't scream: `Internet sales tax.'" Cleland and Moylan suggested Womack was spearheading the bill because he represents the 3rd District in Arkansas, where Wal-Mart Stores Inc. has its headquarters. "He's their home-state darling," Cleland said.
Wal-Mart and other traditional retailers must remit taxes in each jurisdiction where they have a physical presence. With its nationwide footprint - stores in all 50 states - Wal-Mart has to pay more in taxes than an online-only retailer that ships orders to customers in states where they don't have a store or warehouse.
"Wal-Mart's trying to find a way to pass legislation to place a more onerous collection on their competitors," Moylan said. "They're seeking a competitive advantage." The Bentonville retailer is a member of a group called The Alliance for Main Street Fairness, which said the Senate vote "marks an enormous vote for small businesses, which have been forced to compete on an unlevel playing field for far too long." "Our Main Streets aren't asking for special treatment, just simply for an honest chance to compete against their online counterparts ," Womack said at a Thursday press conference in front of the Capitol.
Conservatives who see the bill as unleashing new tax collections are reacting in a "kneejerk" fashion, Womack said.
"I reject that argument completely," he said, adding that once states see more tax revenue coming in as a result of the measure, they are likely to lower tax rates.
Womack was joined by Rep. Jackie Speier, a California Democrat, and about 20 small business owners from across the country who say they are losing business to Internet companies.
"We're not looking for any special advantages, we just want to close this loophole," said Anna Brumby, co-owner of The Brumby Chair Co., an Atlanta rocking chair manufacturer.
According to the National Conference of State Legislatures, states lost $34.4 billion in uncollected sales taxes last year. Arkansas, according to the group, was deprived of $114 million in tax revenues.
Womack said that unless states and localities are able to start collecting tax on those sales, municipal services, including road repair and policing, will go unfunded.
After his press conference Thursday, Womack gave the 20 or so retailers who joined him a pep talk as they prepared to pitch the bill to their legislators. He suggested they tell their congressmen to go to their local high schools and check the list of booster club sponsors, for a reading of how important retailers are to community groups.
"Nowhere on the list is going to be eBay or overstock. com," Womack told the retailers. "On that list is going to be the local hardware store or the local jeweler."