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December 2, 2011 | By | Posted in Governor

New online sales tax policy could boost state revenues, hurt some businesses

Business community applauds the policy change
 
By Eric Boehm | PA Independent
 
HARRISBURG — The Pennsylvania Department of Revenue is placing stricter rules on online merchants who do not collect sales taxes for the state.
 
But the new policy could have negative impacts on small online publishers that rely on advertising from those merchants.

 
In announcing the new policy this week, state Secretary of Revenue Dan Meuser said it was supposed to clarify laws regarding which businesses must collect sales tax for the state. Pennsylvania estimates that it is losing out on about $380 million annually from unpaid online sales taxes.
 
“It’s simply a matter of fairness under the existing law, and it’s essential that both e-commerce retailers with nexus and brick-and-mortar stores in Pennsylvania, many of which are small businesses employing thousands of Pennsylvanians with retail jobs, are treated equally,” Meuser said in a statement.
 
Meuser said the new policy is part of a two-fold approach to the online sales tax issue, which also includes adding a “use tax” line to the state income tax forms next year for individuals to self-report their unpaid sales taxes from online purchases.
 
 
The new rules from the state Department of Revenue are intended to clarify what counts as “nexus” in a retailing world that looks nothing like it did in 1992.
 
Under the new rules, retailers that store goods in Pennsylvania warehouses — even if they are operated by a separate company — would be required to collect sales taxes, a directive aimed at Amazon.com, the largest online retailer that does not collect sales tax for the state.
 
But that’s not all. 
 
Any retailer that advertises on websites based in the Keystone state also would have nexus, which could be bad news for small businesses, nonprofits, blogs and anyone who owns a website and generates revenue through advertising with remote retailers.
 
Steve DelBianco, executive director of The NetChoice Coalition, a Washington, D.C.-based trade association for online businesses, said he expects most of those retailers will sever their contracts and continue advertising with websites outside of the state.
 
“The people who are really hurt by this are small Pennsylvania website publishers who rely on advertising from big retailers,” DelBianco said. “In every state where this has happened, the companies have canceled their advertising contracts.”
 
According to the department's tax bulletin, the state will seek to collect taxes from any remote seller that stores property “at a distribution or fulfillment center located within the Commonwealth,” even if another firm owns or operates the center.
 
Additionally, a remote seller will have to collect taxes if it “accepts orders that are directly shipped to Pennsylvania customers from a Pennsylvania facility which is operated by a remote seller’s affiliate, agent or independent contractor.”
 
The state will consider a remote seller to have “nexus” in Pennsylvania, if the remote seller is linked to websites of sellers physically in the state, or if the remote sellers’ affiliates or contractors provide delivery, repair or support services within the state.
 
DelBianco said the policy is also “blatantly discriminatory” against online publishers, because it specifically identifies website advertising as providing grounds for nexus, but not advertising in Pennsylvania-based newspapers and television or radio stations.
 
 
Elizabeth Brassell, spokeswoman for the state Department of Revenue, said the examples given in the new policy were meant to be “including but not limited to” website advertising, but print ads and other forms of direct promotions within the state also would qualify as nexus.
 
“Those are the answers to the most common questions we have been getting, most of which have to do with e-commerce,” she said.
 
Companies whose business activities establish nexus in Pennsylvania must become licensed to collect sales tax as soon as possible, but no later than by Feb. 1.
 
Failure to register with the state could result in tax assessments, audits and leans, with the potential of referring the case to the state attorney general for prosecution. In cases where companies with nexus blatantly disregard the obligation to begin collecting sales tax, the department has the statutory authority to look back at least three years for audit and assessment purposes.
 
The business community in the state has applauded the new policy.
 
“This is a major step forward by Pennsylvania to bring online-only retailers in-line and into compliance with the law, and with current practices adhered to by brick-and-mortar retailers,” said Brian Rider, president and CEO of the Pennsylvania Retailers’ Association, a trade association.
 
Large online retailers, such as Amazon.com, get around the nexus requirement by establishing warehouses and distribution centers as independent firms and licensing with them to do business. The online sales giant has several distribution centers in Pennsylvania, but it does not remit sales tax to the state.
 
Amazon has negotiated deals with Tennessee and California to begin collecting taxes from sales made in those states, but in other cases — most notably in New York and Illinois — the online sales giant has severed its relationship with contractors and affiliates to avoid paying taxes.
 
Amazon did not return calls seeking comment, but the company supports a congressional solution to the out-of-state sales tax issue.
 
“Congress — and only Congress — may, should and feasibly can authorize the states to require out-of-state sellers to collect the sales tax already owed,” said Paul Misener, Amazon’s vice president for Global Public Policy, told a congressional committee last week, according to written testimony.
 
On the same day that the department announced the new sales tax policy, state tax returns for November were made public, showing that Pennsylvanian has collected more than $708 million in sales taxes this fiscal year, which began in July. 
 
Those collections are $18.9 million below the state’s estimate for the fiscal year.
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