ABA Again Calls for Governors to Enforce Sales Tax Regs

The American Booksellers Association has once again called on the U.S. governors in the 45 states that collect sales tax to fully enforce existing regulations by ensuring that retailers with a physical presence in their state collect sales tax on online sales. In a December 19 letter to the governors, ABA CEO Avin Mark Domnitz wrote, "Importantly, we are in no way discussing any new 'Internet taxes.' Rather, we are urging the state taxing authorities to look behind the facades of a 'separate' Internet company that some national chains use to argue that they have no physical presence within the state. This is patently not the case, as even a cursory look at their business model reveals." ABA last wrote U.S. governors in October 2001, as part of the association's ongoing efforts to help secure a level playing field for independent booksellers.

The latest letter to the governors comes in the final week of the holiday shopping season, one that has seen an unprecedented surge in online retail sales. According to the Wall Street Journal, the number of U.S. households with Internet access that have purchased gifts online this year jumped by 19 percent. In addition, consumers spent a record $2 billion shopping online in the week after Thanksgiving, which was a 34 percent increase over 2001. Analysts now expect holiday sales to grow between 30 to 35 percent, reaching $13.1 billion.

These successes came as industry analysts are increasingly underscoring the importance of an Internet sales strategy that rests on a multichannel retail foundation. In a story appearing in its December 14 edition, the New York Times noted, "the fastest growth [in online sales] appears to be coming from retailers that have mastered how to use the Internet in conjunction with catalogs, stores, or both." ABA's letter points out that many retailers, including Barnes & Noble, benefit from an integration of online and bricks-and-mortar operations -- including cross-merchandising opportunities and the ability to accept returns of online sales at stores -- even as they fail to collect sales tax on online sales.

Unfortunately for many states, this loss of sales tax revenue comes, as the letter points out, just as they "face the most dire fiscal situation since World War II." A shortfall in tax collections, wrote Domnitz, is "handicapping states' efforts to serve citizens. In fiscal 2002, sales tax collections were 3.2 percent lower than originally budgeted, personal income tax collections missed states' targets by 12.8 percent, and corporate income taxes were a staggering 21.5 percent lower than projected. Forty-one states collected less revenue in fiscal 2002 than they had planned for in their budgets."

ABA's letter stresses that "the independent booksellers in your state are not asking for special treatment. However, they are looking for their state government to enforce the laws uniformly and fairly." It calls for the governors to "please immediately take concrete steps to end this discriminatory enforcement of existing law and require all retailers -- whether they operate online, in physical stores, or in some combination of both -- to start to fulfill their obligation to collect sales taxes."

Oren Teicher, ABA COO, told BTW that next month ABA will be asking booksellers in the 45 states that collect sales tax to follow up this week's letter with a communication of their own to their governors. ABA will be contacting booksellers in early January to provide further details and to offer assistance.

For the full text of the ABA letter, see below.

December 19, 2002

Dear Governor:

As we begin the final week of the holiday shopping season, there is undisputed evidence that online retailers are experiencing a banner year. According to the Wall Street Journal, the number of U.S. households with Internet access that have purchased gifts online this year jumped by 19 percent. Consumers spent a record $2 billion shopping online in the week after Thanksgiving, which was a 34 percent increase over 2001. Overall, analysts now expect holiday sales to grow between 30 to 35 percent, reaching $13.1 billion.

However, for states and municipalities, there is a decided downside to these robust gains. A number of national retailers, many with physical presences within the same state, continue not to collect sales tax on the sales of their e-commerce operations, even as states face the most dire fiscal situation since World War II.

We are writing on behalf of the many booksellers in your state to further the dialogue regarding this egregiously unfair business loophole -- one that continues to unfairly penalize your state's independent businesses' e-commerce initiatives.
Importantly, we are in no way discussing any new "Internet taxes." Rather, we are urging the state taxing authorities to look behind the facades of a "separate" Internet company that some national chains use to argue that they have no physical presence within the state. This is patently not the case, as even a cursory look at their business model reveals.

As was underscored in the December 14 edition of the New York Times, "the fastest growth [in online sales] appears to be coming from retailers that have mastered how to use the Internet in conjunction with catalogs, stores, or both." Successful online retailers offer customers a seamless shopping experience, blending the company's online and bricks-and-mortar operations.

What's good for consumers has also been good for these national retailers. The CFO of book retailing giant Barnes & Noble was recently quoted as noting that the growth of Barnesandnoble.com has also helped boost results at Barnes & Noble. He explained that the company is "committed to a multichannel strategy." For some time now Barnes & Noble has been rolling out new stores that offer access to its online operations, where online orders can be placed from a physical store, and where customers who buy books and CDs from the Barnes & Noble Web site will be able to receive merchandise credit. In addition, Barnes & Noble recently launched a national ad campaign that touts the integration of its online and bricks-and-mortar businesses.

Such a "bricks-and-clicks" corporate strategy clearly establishes a physical presence in your state and establishes a substantial nexus between the seller's activities and the states. And Barnes & Noble is not alone.

While independent booksellers have long argued that state governments should never be in the business of playing favorites among retailers, their message is delivered now in a very different fiscal context. As the National Governors Association noted on November 25, despite significantly curtailing state spending, 37 states were forced to reduce their enacted budgets by about $12.8 billion in fiscal 2002. About mid-way through the current fiscal year, 23 states plan to reduce their net enacted budgets by more than $8.3 billion.

Clearly, falling tax collections are handicapping states' efforts to serve citizens. In fiscal 2002, sales tax collections were 3.2 percent lower than originally budgeted, personal income tax collections missed states' targets by 12.8 percent, and corporate income taxes were a staggering 21.5 percent lower than projected. Forty-one states collected less revenue in fiscal 2002 than they had planned for in their budgets.

When companies dodge their legal responsibility to collect sales taxes, they are siphoning money away from such essential local services as policing, fire fighting, and schools. Over the past few years, the problem has only grown worse, as more e-commerce companies that fail to collect sales tax compete unfairly, driving more consumers online because of an unfair playing field.

The independent booksellers in your state are not asking for special treatment. However, they are looking for their state government to enforce the laws uniformly and fairly.

Please immediately take concrete steps to end this discriminatory enforcement of existing law and require all retailers -- whether they operate online, in physical stores, or in some combination of both -- to start to fulfill their obligation to collect sales taxes.

Thank you for your consideration.

Sincerely,

Avin Mark Domnitz
CEO
American Booksellers Association