NRF Rebuts DMA's Position on Sales Tax

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The Direct Marketing Association is releasing a new study today that shows current calculations of uncollected sales tax are "vastly lower than previously reported, potentially leading to misguided congressional policy forcing remote sellers to collect that tax from their customers nationwide."

But the National Retail Federation, a Washington-based trade association for the nation's largest offline and online retailers, thinks the DMA misses the point.

"Our position is that we want sales tax collection responsibility to apply equally to all sellers regardless of how they sell, be it in store, catalog or online," Maureen Riehl, vice president and state and government counsel at the NRF, said yesterday.

The Streamlined Sales Tax Agreement was proposed by the NRF, 35 states and the District of Columbia to address that issue. It has more than 20 features for uniform administration of that tax. Included is the format for an exemption certificate as well as uniform sourcing rules for centralized and state-level administration.

"So that means that catalog and Internet merchants do not remit tax that they collect to local jurisdictions," Riehl said. "It's going to be done at the state level. So rather than doing 7,600 different jurisdictions, they'll have to do 45 states and the District of Columbia."

Of course, this requires a harmonized tax, so the state and local tax bases must be identical. For example, if the state does not collect taxes on apparel, then the local jurisdictions cannot do so.

Also in the streamlined agreement is a "hold harmless" or "safe harbor" clause. It protects participating catalog and Internet-only retailers that rely on that clause from an audit for mistakes as long as the seller relies on state-certified documents. This covers catalog, store and Internet-only merchants.

In essence, each participating state will produce a document that certifies what is taxable in the state, or the tax base. They also will certify on a ZIP+4 basis, which is a special rate. Goods that go into those ZIP+4 addresses must be taxed at this rate. This gives sellers a reliable safety net from an audit.

As things stand, the Streamlined Sales Tax Agreement is a voluntary system. Remote sellers cannot be forced to collect taxes on behalf of the state until Congress gets involved.

"It's inevitable that there will be a mandatory system," Riehl said. "The states have the political will, and it's supported by a host of business interests including retailers, manufacturers, telecom companies and others. The DMA wants perfection, and this is a political issue. As long as you have states to do two things -- what they tax and at what rate -- it'll always be a political discussion, therefore imperfect."

The brouhaha over remote-sales tax arises from states with dwindling treasuries looking to plug deficits. Independent non-retailer-funded studies by the University of Tennessee and Jupiter Research show that states lose revenue by missing out on sales taxes from remote sales. Online sales last holidays, for example, grew more than 25 percent year-over-year while store-based retail rose only 2.5 percent or so.

Increasingly, viable retail businesses will have to be multichannel in nature. The NRF takes upon itself to ensure that tax policy at the federal, state and local levels does not prohibit retailers from choosing how they sell to their customers.

Simply put, what NRF members like Sears, Roebuck and Co. and its Lands' End subsidiary, Target Corp., Crate & Barrel, Gap Inc. and hundreds of independents are seeking is a level playing field. They, too, do not want to lose sales to other channels.

"DMA members will never do this under the current system," Riehl said. "The fact that they don't collect from their customers right now [except in states where they have offices or warehouses] is legitimate. The U.S. Supreme Court said so simply because the sales tax system in the states today is too complicated. That's why we've spent three years trying to simplify the system."

Two things must happen for the Streamlined Sales Tax Agreement to gain teeth. First, states have to make difficult political changes within their geographical boundaries to conform to the streamlined agreement. Next, Congress has to approve the agreement for it to become law.

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