Collecting taxes too costly, unfair, Web seller argues

In a battle over who should collect online sales tax, Overstock.com’s chief said Thursday that Internet stores have an inherent right to collect fewer taxes than traditional retailers because they take up less space and don’t use such city services as roads, schools, police and fire departments.

“Taxing isn’t a tithe one pays to the gods,” Patrick Byrne, chairman and CEO of Overstock.com, told The Washington Times in an interview. “Taxes are the price a government charges for its services.

“In my opinion, Overstock consumes far less of the services of a town that are consumed by in-town, brick-and-mortar retailers, so we shouldn’t have to pay the same price when they’re consuming all these services that we’re not using,” he concluded.

Many shoppers assume online sales are tax-free, but they aren’t. However, online retailers aren’t required by law to collect a tax automatically and forward it to the government, as brick-and-mortar stores must. And because people are used to the other model of paying sales taxes via the merchant, very few online purchasers do so.

However, state governments don’t see taxes the way Mr. Byrne does — as a fee for services — and say taxes need to be collected to raise revenue and close their budget deficits. Several states are pushing online retailers to start collecting sales taxes.

Big-box stores, furthermore, have long argued that online retailers should collect the same taxes they do because otherwise Internet products appear cheaper and that gives the online businesses an unfair advantage.

“It’s becoming a very, very unfair tax,” said Rachelle Bernstein, vice president and tax counsel for the National Retail Federation, which represents both online and traditional retailers. “We think it’s time to eliminate that disadvantage.”

But Overstock.com says making Internet retailers collect sales taxes as brick-and-mortar stores do would put them at an even greater disadvantage. While a brick-and-mortar store only needs to collect sales taxes for one state and a few local governments, online retailers say they would be forced to collect from customers in the more than 9,600 U.S. tax jurisdictions.

Mr. Byrne estimated that a requirement to collect sales taxes would cost each company between $30 million and $50 million to comply — to pay for new technology, add staff to monitor the system and hire another legal team to handle disputes. It also would be nearly impossible for companies to guarantee they are up-to-date on the ever-changing tax laws in every jurisdiction in the country, he said.

“It’s much, much simpler for a big-box retailer,” Mr. Byrne said. “They have a much simpler problem.”

To comply, Overstock.com would use Sabrix tax software, a database where federal, state and local governments can plug in all of their tax rates, and then it would automatically tell the company how much tax to charge on each sale.

There are two bills in Congress right now that address online sales tax, including the Senate’s bipartisan Marketplace Fairness Act, sponsored by Sens. Michael B. Enzi, Wyoming Republican, and Richard J. Durbin, Illinois Democrat and the chamber’s majority whip. The House has a nearly identical bill before it: The Marketplace Equity Act.

(Corrected paragraph:) While Mr. Byrne does not support the legislation as it is currently written, he said Overstock.com is working with Congress to come up with an acceptable solution. The Overstock chief added his company would be more willing to collect sales tax if the federal government paid for a system rather than making each online retailer create its own.

The Overstock chief said his company would be willing to collect sales tax if the federal government paid for a system rather than making each online retailer create its own.

Congress, which likely will take up the heated issue next year after the elections, should then require any government that wants online retailers to collect tax to opt into the system, Mr. Byrne said.

“If they’re going to pass the law, they have to do something that’s streamlined and efficient,” he said. “It’s a nightmarishly complex issue. It could get real messy.”

Mr. Byrne also said mistakes would be inevitable and online retailers shouldn’t be on the hook to repay governments or customers when the system charges the wrong tax rate.

Certain jurisdictions exacerbate this problem by changing their rates for a short period of time, known as a “tax holiday,” such as cutting the rate on school supplies during back-to-school season.

“In one taxing jurisdiction,” Mr. Byrne said, “a Snickers bar is candy and has one rate. In another jurisdiction, a Snickers bar is food, because it has peanuts in it, and there is a different tax rate.”