Georgians torn over tax on Internet sales

That’s just fine with Bob Khoury.

The owner of Atlanta’s Showcase Photo and Video said he regularly sees customers come into his store, learn about cameras and video equipment and then head home to buy what they want online. The difference is sales taxes.

Khoury recounts this encounter with a customer who was on a waiting list for a $3,000 camera. “He said, ‘I am having a hard time paying $240 more for that camera here than I can get it for online,’” Khoury said. “This is a long-standing customer; this is a guy who has been loyal to us for years.”

State leaders two weeks ago pushed a tax overhaul through the General Assembly that includes the Internet sales tax for companies that don’t currently collect it. Supporters of the provision, taking Khoury’s side, cite “e-fairness.”

“It is hard to be competitive when you have to charge 8 percent more than your competition right off the bat,” Khoury said.

Will it fly in Georgia?

Even if Gov. Nathan Deal signs the tax bill into law, as expected, it’s unclear whether companies such as Amazon will collect sales taxes in Georgia.

States across the country hard-hit by the recession have been passing so-called “Amazon” laws in hopes of raking in some of the hundreds of millions of dollars they say they lose to e-commerce. But trying to force online retailers to collect sales taxes is tricky: The U.S. Supreme Court in 1992 essentially said sales taxes should only be collected when a seller has a physical presence in the state in which the sale occurs, such as a store or a warehouse.

So state legislators have expanded their definition of “physical presence” to include online retailers that have marketing or advertising affiliates in their states. By this standard, a retailer such as Amazon, which says it has a physical presence in only a few states, suddenly has a physical presence almost everywhere.

The affiliate relationship works this way: A gardening blog has an ad for an online seed sales company, or a site devoted to dogs links to an online pet store. A code embedded in the ad indicates which affiliate sent traffic to the retailer. If the user clicks through and buys something, the affiliate receives a commission.

Faced with having to collect sales taxes because they have affiliates in a given state, some online retailers have simply dumped those affiliates.

“It’s possible Amazon just cuts all its affiliate ties here and the tax collections could be zero,” said Peter Bluestone, senior research associate with Georgia State University’s Fiscal Research Center, which did revenue estimates on the tax bill.

Amazon officials have not publicly said whether they will collect taxes or get around the law by firing Georgia affiliates.

Meanwhile, Amazon and other companies have announced support for a federal solution: a standardized, simplified sales tax system. But most states aren’t holding their breath on Congress acting anytime soon.

Did you know?

Under current law, Georgians who shop online but don’t pay a sales tax at the time of purchase are supposed to file it on their income tax returns, but most people don’t know that.

Georgia lawmakers have talked about the issue for a decade. Last month, in the same tax bill that gave manufacturers, farmers, mining interests, airlines and some car buyers a tax break, the General Assembly voted to expand the definition of a physical location or “nexus” to include online affiliates starting Oct. 1.

Businesses and business groups, from Wal-Mart and the Georgia Chamber of Commerce to Acme Plumbing Service in Hiram, formed a coalition to lobby hard for the tax collections, saying it’s only fair because stores already collect the taxes. They got a boost from Deal, who supported the push.

Brian Robinson, his spokesman, said, “It levels the playing field for the Georgia job creators who pay not only sales tax but also property taxes here.

“Eventually, it’s an issue that the federal government will have to address, but until then, we don’t think it’s right to give out-of-state businesses a huge advantage over Georgia’s brick-and-mortar stores.”

On the other side of the argument are affiliates such as Greg Hoffman, a Roswell consultant who faces the prospect of losing money if online companies pull their agreements with him.

Hoffman said there are an estimated 6,000 affiliates in Georgia, and he believes companies such as Amazon will terminate their agreements — as they have done in other states — shortly after Deal signs the tax bill.

“They don’t want to deal with the alleged nexus,” he said.

Hoffman said his affiliate agreements are a side business from which he earns extra spending cash. Losing the $20 to $100 a month he earns won’t make or break him. But he said some larger affiliates may move out of state to avoid getting dumped by companies such as Amazon. That has happened in other states that passed an “Amazon” law.

Georgians are mixed on the issue.

Dave Ward, a Roswell software developer, called the tax a “shortsighted decision” by lawmakers.

“While sales tax on Internet purchases may drive some businesses back to local retailers, I think the change will be marginal,” Ward said. “Very few of us are purchasing online to avoid sales tax, and programs like Amazon Prime have offered nearly free shipping for some time now.

“The key differentiator between traditional retail and e-commerce is convenience, not price. The only net impact the proposed legislation will have is to reduce the total amount of purchases Georgians can afford on a given budget.”

Virginia Galloway, state director of the anti-tax Americans for Prosperity, is an example of how people are torn on the issue.

She said her national organization opposes the tax. But Galloway said her mother owns a book shop, so she has a harder time opposing it.

“There really are two sides to the story,” she said. “We didn’t really feel like it was good policy, but we certainly feel sympathy for people paying property taxes and Georgia income taxes and then having to collect sales taxes when other people don’t.”

AT A GLANCE

A unanimous state Senate passed House Bill 386 and just nine of 180 House members voted against it. The tax bill now awaits the signature of Gov. Nathan Deal, who supported it. Key elements of HB 386:

● Increases the personal state income tax exemption for married people filing jointly from $5,400 to $7,400.

● Does away with property taxes on cars bought after March 1, 2013. Instead of the annual ad valorem tax — also known as the “birthday tax” — the legislation calls for a one-time title fee. The fee would start at 6.5 percent in 2013 and rise to 7 percent in 2015.

● Adds sales tax exemptions for energy used by manufacturers, farm machinery and supplies, and airline fuel.

● Collects sales taxes from more Internet purchases.

● Restores sales tax holidays for school supplies and energy-efficient appliances.

● Caps nonwork income that seniors can exclude from income taxes at $65,000, or $130,000 per couple.

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