Online sales tax battle looms in US

Amazon and Ebay, two of the biggest names in online retail, have staked out contrary positions in a debate over the taxation of US internet shopping, which enables many buyers to escape paying sales tax.

The two companies are divided in the face of a lobbying challenge from bricks-and-mortar rivals including Walmart and Sears, which complain that a tax loophole gives their online rivals an unfair price advantage.

The issue is being pushed up the political agenda by the weak public finances of many US states, which are struggling with budget deficits and are eager to find new sources of tax revenue.

The US does not have a federal tax law on internet commerce, but since 2008 seven states have changed their laws in an effort to make Amazon and others collect sales tax from customers.

Amazon has fought such moves aggressively, but says it would support a federal law provided it was simple and applied even-handedly. Ebay, by contrast, remains a staunch opponent of any catch-all legislation.

The controversy has implications for cash-strapped consumers, whose shift to tax-free online shopping was accelerated by the economic downturn.

Credit Suisse analysts have estimated that far-reaching federal sales tax legislation could cut $653m or 2.7 per cent off Amazon’s forecast 2011 North America revenue.

In six of the states that have modified their laws, Amazon has severed its ties with local marketing affiliates to avoid being captured by the legislation.

In New York, the seventh state, it is collecting sales tax but suing to have the legislation repealed.

Jeff Bezos, Amazon’s founder and chief executive, told shareholders last week: “I believe we’ll have the simplified sales tax initiative passed [in ten years] . . . I hope it might happen much sooner than that.”

Ebay, by contrast, is opposed to any form of legislation that would impose taxes on small retailers, including thousands of those who sell goods on its web marketplace.

Brian Bieron, senior director for federal government affairs at Ebay, said: “We believe that putting a tax burden on small businesses and treating them the same as giant retailers is unfair. This would add a new cost.”

Several bricks-and-mortar retailers – including Walmart, Target, Sears and Best Buy – have joined a lobbying group called the Alliance For Main Street Fairness that is encour­aging states to modify their laws.

Danny Diaz, a spokesman for the alliance, criticised Amazon’s position. “It is incredibly disingenuous for them to say they support a federal solution when they are battling state efforts tooth and nail. Their entire business model is based on state tax avoidance,” he said.

Additional reporting by Nicole Bullock in New York

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