Major Dot-Com Retailers Begin Levying Sales Tax By Brian Krebs washingtonpost.com Staff Writer Thursday, February 6, 2003; 12:00 AM Some of the nation's largest retailers this week started voluntarily collecting taxes on all of their online sales. The companies are among the first in the nation to collect sales taxes from online shoppers across the country, not just shoppers who live in the states where the companies maintain actual stores or distribution centers. In return, 38 states and the District of Columbia agreed to absolve the retailers from any liability for taxes not previously collected on Internet sales. Arizona, California and South Carolina are not parties to the deal, and four other states have not yet signed on. Most of the retailers involved have physical locations in the 45 states that levy sales taxes. The agreement is expected to give states a new source of revenue to battle historic budget deficits. It also is a victory for state and local governments that want to simplify their tax systems to accommodate e-commerce and level the playing field between online and main street merchants. Atlanta attorney John Coalson, who represented the retailers in the negotiations, declined to say which ones accepted the plan, saying that revealing their names would let the states that rejected the deal chase down the companies for back taxes. "If we disclose who these companies are, it's like putting a target on their back," he said. The companies that Coalson represented were required to begin voluntary sales tax collections on Feb. 3. No source contacted for this story would reveal the names of the participating retailers. In the past week, however, Wal-Mart, Marshall Fields, Target, Toys R Us and Mervyn's each posted new sales tax notices on their Web sites, saying that the companies will charge taxes for buyers living in the states where sales taxes are on the books. Under current federal law, Internet merchants must charge applicable sales taxes if the buyer is located in the same state as the company. But the new deal effectively applies the same sales tax laws to retailers' online and bricks-and-mortar operations. Online units are often chartered as separate entities and maintain physical locations in only a handful of places, thus exempting customers from most states from paying sales taxes. For example, Wal-Mart has 1,500 stores scattered across all 50 states, but WalMart.com, a separate subsidiary, has a physical presence in only nine states. WalMart.com and other retailers who changed their tax collection rules declined to say whether they were party to the amnesty agreement. Wal-Mart and Toys R Us said they made the changes in response to feedback from customers who wanted to be able to return or exchange items bought online at the companies' bricks-and-mortar stores. "We decided we would not be able to do that unless we charge sales tax for those online purchases," said Toys R Us spokeswoman Susan McLaughlin. Wal-Mart Stores Inc. spokeswoman Cynthia Lin said that voluntarily collecting online sales taxes was the right thing to do. "Many states are struggling with tax revenue shortages that affect funding for everything from schools to fire and rescue. This is our effort to help customers and the states they live in," she said. A notice on Amazon.com, which has partnered with Target Brands Inc. sites like Target.com, Fields.com and Mervyns.com, says: "Effective February 2, 2003, target.direct and marshallfields.direct will be required to charge sales tax in all states other than Alaska, Hawaii, and Vermont. The new collection requirements will apply to all orders shipped and charged on or after February 2, 2003, even if your order was placed prior to this date." The sales tax collection deal follows efforts by tax administrators in several states to find ways to tie main-street retailers to their online cousins. California regulators last year ruled that online bookstore Barnesandnoble.com must collect taxes on sales to customers in California. The state said that although the company's two operations were incorporated separately, a link existed because the brick-and-mortar stores gave out $5 coupons to be used at the company's Web site. "What we want to do is clarify that online sales from companies that have physical presences here are not going to [be] permitted to use their tax dodge subsidiaries to escape tax collection obligations," said Carole Migden, a member of the state's Board of Equalization, which manages the state's sales and property taxes. Arkansas and Minnesota require Internet retailers to collect taxes if their local main-street affiliates accept returns or exchanges for online purchases. Louisiana has also considered similar legislation. The amnesty is a symbolic victory for members of the Streamlined Sales Tax Project, a group of 36 states and the District of Columbia that approved a plan to make it easier for states to collect sales taxes on products sold online. The project calls on states to simplify their tax codes to accommodate e-commerce, and outlines easier tax-reporting requirements for online merchants. Diane Hardt, co-chairman of the Streamlined Sales Tax Project and tax administrator for the Wisconsin Department of Revenue, applauded the amnesty deal. Most states have started taking concrete steps toward adopting the streamlined sales tax proposal. Congress and the White House also would have to act before the online sales tax plan could be implemented.