Push grows for online tax law, but Oregon sees little to gain Critics say a new law would burden states that lack a sales tax

Oregon companies may soon be forced into collecting a new tax, but the state’s shriveling coffers wouldn’t see one penny.

JEFFREY KOSSEFF OregonLive.com

Nationwide, momentum is building for a federal law requiring all e-commerce and mail-order companies to begin collecting sales taxes from residents of the 45 states that have a sales levy. Those states say that as online shopping continues to gain popularity, they are losing billions of dollars in potential tax revenue.

Oregon, however, isn’t one of those states that’s complaining. Because it is one of five in the nation that don’t impose a sales tax, Oregon’s businesses and lawmakers are fighting hard against proposed requirements. They say it could only lead to administrative inconvenience for e-commerce companies and create barriers to selling online.

"I certainly think it would be a giant nuisance to have to do that," said Vern Swearingen, treasurer of StoryQuilts.com, a Beaverton quilt store that sells online. "We do business in a large number of states. To have to be the tax collector for those states is a burden."

That argument has been one of the factors in delaying any such e-commerce collection requirements. A 1992 U.S. Supreme Court ruling allows a state to require retailers to collect taxes from its residents only if the retailer has a physical presence, such as a warehouse or office, in that state. For states to collect from all other retailers, Congress must pass a law, and it has been reluctant to do so.

That may soon change. States are streamlining their tax systems, and some large retailers, such as Wal-Mart, have recently announced they will voluntarily collect taxes on all online or catalog purchases.

"We’re very hopeful to see some mandatory action in Congress some time this year," said Maureen Riehl, vice president for state and government relations at the National Retail Federation, which has been lobbying for mandatory tax collection.

In the past few months, more than 30 of the states that collect sales taxes have hammered out a plan that would make their tax systems more similar to one another’s, and legislatures are now voting on whether to adopt the changes. If enough states adopt the plan, the streamlining will go into effect, making congressional action more likely, many observers say.

According to research at the University of Tennessee, the 45 states will lose a total of $14 billion this year in unpaid sales taxes on Internet and catalog purchases.

"The pressures are certainly growing for some action on this issue," said Bill Fox, the University of Tennessee economics professor who conducted the study.

Sen. Byron Dorgan, D-N.D., has led the charge for sales tax collection requirements but failed in past years. He is considering his options for proposing similar legislation this year.

"This puts online retailers at an enormous advantage over brick-and-mortar stores, which isn’t fair," Dorgan spokesman Barry Piatt said. "And it may be an infant industry, but it isn’t so small. These taxes are an enormously important source of income for state and local governments."

That argument isn’t good enough for U.S. Sen. Ron Wyden, D-Ore., one of the nation’s most outspoken opponents of a federal law requiring Internet sales tax collection. Any unfair taxes on the Internet, he said, would impede its growth.

"The states are having tremendous financial problems, but I’m not of the view that sticking it to the hard-hit technology sector is the answer," Wyden said.

Many states require their residents to report all online and catalog purchases and pay them along with their annual income taxes. The "use tax" relies on the honor system, they argue, making it difficult to collect.

But Web retailers shouldn’t face the burden of sorting through that problem, Wyden said, just as traditional stores in Oregon aren’t required to verify customers’ Oregon residency to make sure their purchases shouldn’t be taxed.

"We’re not getting in the way of their collecting taxes owed," Wyden said. "We’re just unwilling to shift the burden to someone else."

The burden of collecting for 45 states would be significant, said Swearingen, the treasurer of Storyquilts.com.

"Our software certainly is not equipped for that," he said. "That would be an expense for us."

Nancy Arbogast, owner of Eugene-based Kyoto Kimono, a Japanese clothing e-commerce site, said tax collection would be a "big pain," but she has seen software that makes it easier.

The National Retail Federation’s Riehl said any proposal would compensate e-commerce companies for the cost of collecting the taxes. And the plan would exempt small e-commerce companies, she said.

Some Oregon e-commerce companies aren’t worried.

Powells.com, the online arm of the bookstore chain and one of Oregon’s most well-known dot-coms, said the lack of an online sales tax has made selling easy, but it hasn’t been a big factor in customers’ decisions to buy online.

"To this point, it hasn’t been a major advantage," said Dave Weich, Powells.com’s director of content and marketing. "We’re not talking about buying expensive electronics online."

Fox, the University of Tennessee professor, acknowledged that Oregon wouldn’t see a windfall like the 45 states, but he said that a national retail-tax system would benefit the nation.

"Obviously, Oregon doesn’t stand to gain as much as other states," Fox said. "But the real issue is that, ultimately, the U.S. economy will be healthier when businesses just go out and make good business decisions and taxes aren’t the driving factor."

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