Changes in law to let Georgia net more sales tax from online purchases

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Changes in law to let Georgia net more sales tax from online purchases

Online sales tax

Some companies that collect it in Georgia

Home Depot

Macy’s

Best Buy

Companies that do not collect it in Georgia

Amazon.com

Overstock.com

Newegg.com, an electronics retailer

When he shops online, Clarkston resident Maurice Blackburn doesn’t care whether he pays sales tax or doesn’t. He just wants the lowest price he can get.

Sometimes that leads him to Macy’s website; other times, to Amazon.com.

At Macy’s, he always pays taxes. At Amazon, he never does.

It’s a disconnect Georgia is trying to end. With changes in the tax law that began to take effect last week, the state intends to begin treating some online retailers the same way it treats those with stores here: by collecting sales tax.

That means Georgians who avoid paying sales tax by buying online may now find that harder to do.

The amount of money people spend online is growing steadily and shows no signs of abating. In Georgia alone, a 2009 University of Tennessee estimate projected the state would lose as much as $455.5 million in uncollected sales tax from online purchases in 2012.

Collecting the tax from some web sellers that were not previously required to charge sales tax will add an estimated $18 million a year to the state’s coffers.

With the change, the state will collect just a portion of the missing dollars, but in Georgia and around the country, revenue shortfalls caused by the recession have added urgency to the push for more sales tax collections.

It’s also an issue of fairness for stores in local strip centers and shopping malls, which pay property taxes and contribute to the fabric of a community. A desire to put them on equal footing with online competitors has galvanized support to extend sales tax collections in many states. There is an expectation, too, that action by the states may lead the federal government to change laws regarding sales tax collections. Online-sales-tax bills are wending their way through the House and the Senate.

“It means a great deal to small business,” said Rick McAllister, president and CEO of the Georgia Retail Association. “It’s tough to start out the day at a mom-and-pop retail store when you’re at an 8 percent disadvantage before you open the door.”

Stores are only required to charge sales tax for online purchases in a state if they have a physical presence in that state: a Macy’s store at Lenox Square, for example, or a call center in Alpharetta.

Georgia has expanded its definition of a “physical presence” to get more online stores to collect sales tax from their customers.

Beginning last week, that included companies that use warehouses or offices in the state, whether they own them or not. At the end of the year, it will also include companies that have click-through ads on Georgia-based websites, known as affiliate relationships.

“It attempts to level that playing field a bit,” Ken Heaghney, economist for the state, said of the changes. “We want them [online and local retailers] to compete on the merits of service and products and pricing.”

For a $250 iPod Touch, an Amazon.com buyer whose county charges 7 percent sales tax would save $17.50 by buying it there instead of at the local Best Buy. As the price of a product rises, so do the potential sales tax savings.

Georgians who buy items online have long been required to pay a use tax on those purchases, but few people pay it voluntarily. The change simply shifts the burden of tax collection from the buyer to the seller, McAllister said.

Amazon did not return phone calls seeking comment about whether it would begin to charge sales tax in Georgia; neither did anyone at the Marietta company Fabric.com, a subsidiary of Amazon that charges sales tax for goods bought in the state. As of Friday evening, Amazon was not collecting sales tax in Georgia.

Amazon has long battled efforts to make it collect state sales taxes, but gave up that fight last month in California and agreed to start collecting sales taxes there next year. Amazon has said it supports a single national tax solution for online commerce.

“They should collect the tax,” McAllister said. “Amazon has been the bell cow all along.”

Other companies that would be caught up by the law have made changes to avoid being required to collect taxes. Mark Griffin, general counsel for Overstock.com, said after the law passed that company severed relationships with Georgia-based blogs or coupon websites where it had had click-through advertisements.

“It’s an easy business decision to make,” he said. “We’re not located in Georgia.”

About 6,000 small online businesses in Georgia will be affected when retailers end those click-through relationships, said Rebecca Madigan, executive director of the Performance Marketing Association. Those websites make money when people click an ad on their site to go to Overstock.com or a similar web page. In many cases, those affiliate businesses have left the states that enacted such laws in order to continue operating, she said. Others have lost a large percentage of their income when the relationships with retailers ended.

Darin Kraetsch, the CEO of Atlanta-based Flip Flop Shops, said he has halted relationships with affiliates in other states when their laws changed, to keep his advantage in online sales. But he already collects sales tax in Georgia, and so is in favor of other retailers collecting sales tax here, as well.

He said retailers must come up with ways to differentiate themselves other than through tax-free Internet sales. Kraetsch said he will do the same, when he is required to collect taxes in other states.

“Ultimately, I think it’s a good thing,” he said. “I think a lot of Internet businesses rely solely on the fact that they can undercut on price.”

In the meantime, he will use every advantage he has, even if he thinks they are ultimately unfair to other stores.

Shoppers like Diane Coffey, a Dunwoody resident, also recognize the sales advantage some online retailers have. But that doesn’t mean she doesn’t want the savings wherever she can find them.

“Why do you go to the outlet malls? It’s the same thing,” she said. “I can understand it from both sides, but from the shopper’s side, no, I don’t want” that tax.

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