May 22, 2003 Letter From ABA President to Governors re Sales Tax Initiative

Dear Governor:

On behalf of the many independent booksellers in your state, I am writing to follow up on my letter to you of this past December regarding the fight for sales tax equity. Enclosed please find a copy of the letter and a list of signatories.

First, I wish to thank you for responding to independent booksellers and the American Booksellers Association regarding sales tax fairness. We know you agree that the issue of billions of dollars of uncollected sales tax needs to be a top priority.

We understand that much has been made in the press regarding the Streamlined Sales Tax Project (SSTP), a national effort that is looking to simplify the collection of online sales tax from out-of-state retailers. However, the issue we have been raising is slightly different. We remain very concerned about the collection of sales tax for sales made within the state, and we are referring to tax laws already in existence.

We believe that the laws in your state need no clarification -- online retailers that have an indisputable physical "bricks-and-mortar" presence in your state are no different than any other business within your state. When any business, or any online business that has a physical counterpart within the state, makes a sale to a customer within that state, they are required by law to collect sales tax.

As such, your state can enforce your existing tax laws with regards to online retailers now -- without passing a new law or changing an existing one.

As states face the most dire fiscal situation since World War II, it is imperative that states collect sales tax where it is due. According to the U.S. Department of Commerce, in 2002, Internet sales grew at 28.2 percent, while total retail sales only grew by 1.6 percent. According to the General Accounting Office, projected state revenue losses from uncollected sales taxes on remote sales could reach $20 billion in 2003.

Furthermore, when online retailers fail to pay sales taxes for online sales it is unfair to the tax-paying independent businesses in your state, penalizing their e-commerce initiatives and unfairly favoring one business channel over another.

Underscoring our point, a number of online retailers with a physical presence in states have decided to collect sales tax. Under an agreement between retailers and 38 states and the District of Columbia, the retailers will collect sales tax for all online sales nationwide, and, in return, the various taxing authorities will absolve the retailers from any liability for taxes not previously collected on online sales, as reported by the Washington Post.

Wal-Mart, one of the retailers now collecting sales tax on online sales, characterized the decision as good for the company and for communities. "Many states are struggling with tax-revenue shortages that affect funding for everything from schools to fire and rescue," said company spokesperson Cynthia Lin. "This is our effort to help customers and the states they live in," she noted, as reported by the Washington Post. Of course, while this effort does, indeed, help customers and states, it is not an altruistic decision -- it is Wal-Mart's legal obligation to pay sales tax. Other companies now collecting sales tax include Target and Toys R Us.

Some have argued that enforcing existing tax regulations would hinder the growth of the Internet. However, recent research disputes this notion. According to a report issued in early February by Jupiter Research, "Sales Tax: Avoidance is Imperative to Few Online Retailers and Ultimately Futile for All," collecting sales taxes on Internet retail transactions conducted across state lines would not impede the growth of online retail. "Among those that are aware of the fact that sales tax can be avoided, only nine percent actually make merchant selection decisions based upon whether or not that retailer charges sales tax," said Ken Cassar, Jupiter Research senior analyst.

On behalf of the many independent booksellers in your state, we urge you to dismiss the argument made by some national chains that their Internet presence is different from that of their physical presence within the state. A quick look at their business models reveals this to be patently untrue.

For example, purchases made online from many retailers may be returned for credit to the bricks-and-mortar locations of these companies. This is the case with barnesandnoble.com and Barnes & Noble retail stores. If that is not nexus, what is?

While we recognize that each state has a slightly different definition of what constitutes "nexus," we also believe that the so-called affiliate arrangements many online retailers have with other businesses with a physical presence within your state should trigger a requirement to collect sales tax. For example, if a customer in your state makes a purchase from the Web site of an entity from within your state that happens to partner with a national online business, why should that purchase also not be subject to sales tax collection? Such a partnership currently exists between Amazon.com and Borders Books & Music.

It bears repeating: We are not asking for a new Internet tax law. We are simply asking you to enforce your existing tax regulation. We urge you to start collecting online sales tax from online retailers with nexus in your state.

Thank you for your consideration.

Sincerely,
Ann Christophersen
President
American Booksellers Association