Over 560 Independent Booksellers Join in Calling for States to Enforce Sales Taxes Fairly

This week over 560 independent booksellers nationwide joined ABA President Ann Christophersen in signing letters urging their state governors and other elected officials to immediately take steps to enforce state tax laws fairly and uniformly. Specifically, the letters call for states to require retailers with a physical presence in their respective states to collect sales taxes on online sales. (To read the full text of the letter, click here [1].)

The letter underscores that independent booksellers are "in no way discussing any new 'Internet taxes,'" but rather 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." The U.S. Supreme Court has ruled that states can require a business to collect sales tax on online sales if that business has a physical presence, or "nexus," in the state.

The letter notes 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." Specifically, the letter calls the states to 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." (For a full list of the letter's signers, click here [2].)

The letter details two key trends, the continued rise of retail sales on the Internet and the precipitous growth of state budget deficits. The booksellers note that the rapid climb in online sales "appears to be coming from retailers that have mastered how to use the Internet in conjunction with catalogs, stores, or both," and that some major chains employing a "clicks and bricks" strategy are failing to collect sales tax. Regarding online sales, the research and analysis firm Jupiter Research estimates that online sales from November 1 to December 31 exceeded $13.1 billion.

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. The booksellers' letter points out that the states' revenue shortfall is coming "even as [they] face the most dire fiscal situation since World War II." State budget gaps have grown by 50 percent in the last two months and two-thirds of the states must reduce their budgets by nearly $26 billion between now and June 30, according to a report released on February 4 by the National Conference of State Legislatures.

The booksellers note that "clearly, falling tax collections are handicapping states' efforts to serve citizens," and they write, "When companies dodge their legal responsibility to collect sales taxes, they are siphoning money away from essential local services," including policing, fire fighting, and education.

For a sample Press Release that booksellers can send to their local papers about the letter sent to the governor calling for the state to enforce sales taxes fairly, click here [3].

December 19, 2002

Dear Governor:

As an independent businessperson and president of the American Booksellers Association, I am writing on behalf of my over 500 independent bookseller colleagues in your state who have co-signed this letter about sales tax equity.

The numbers are in, and it is clear that in the recently concluded holiday retail season online retailers experienced a banner year. According to the Wall Street Journal, the number of U.S. households with Internet access that 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. The research and analysis firm Jupiter Research has said that online sales from November 1 to December 31 exceeded $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.

I are writing on behalf of the booksellers in your state to further the dialogue regarding this egregiously unfair business loophole -- one that continues to 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 quoted last fall 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. Each day, the news brings more accounts of impending cuts of such core services as policing, fire fighting, and education.

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. 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,
Ann Christophersen, President
American Booksellers Association