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Nicklaus: Collecting Amazon taxes may require federal help

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Jeff Bezos, chief executive of Amazon.com, should be a real folk hero for the anti-tax movement.

After Illinois Gov. Pat Quinn signed a law extending the long arm of sales-tax enforcement to part of the online retailer's business, Amazon said it would cancel its affiliate relationships with Illinois-based companies. It did the same thing earlier to get around so-called "Amazon taxes" in Rhode Island and North Carolina, and it is suing New York over enforcement of a similar law.

When Texas sent a sales-tax bill for $269 million, the online giant said it would close a Dallas-area warehouse rather than pay.

To brick-and-mortar retailers, the anti-tax stand looks more selfish than principled. Everyone from Wal-Mart to the corner store has to collect sales tax from customers and remit it to the state, but online-only sites like Amazon don't.

Legally, both kinds of transactions are taxed the same. In Illinois, Missouri and most states, residents are supposed to pay a use tax — equal to their local sales tax rate — on stuff they buy online.

The trouble is, very few consumers pay the use tax voluntarily, and states have no good way of enforcing it. Illinois' income-tax forms remind people to pay taxes on their online purchases, but the state has no way of knowing where you spent your money.

It's not surprising that this issue has gained prominence in an era when states are hard up for money. Illinois estimates that it's losing out on $153 million of revenue from online sales, and a study by University of Tennessee economist Donald Bruce pegs the nationwide tax gap at $10 billion.

The Amazon tax isn't all about fiscal desperation, however. Traditional retailers have cast it as a fairness issue — Illinois' new law is called the Main Street Fairness Act — and they have a good point.

"It's unfair to local vendors, the brick-and-mortar places, who have to collect and pay the tax while online vendors don't," says J. Fred Giertz, a professor of economics at the University of Illinois.

With Amazon pulling out all the stops in its fight against taxes, do the states really have a chance? They do if the federal government gets involved.

Sen. Dick Durbin, D-Ill., says he wants a federal version of Illinois' Amazon tax, making it harder for online firms to play one state against another. Past Congresses have shown no appetite for this fight, but the retail lobby's growing interest in the issue may change that.

Big-box stores have a lot at stake. Internet purchases totaled $165 billion last year, about 4 percent of all U.S. retail sales. That's up from roughly 1 percent a decade ago.

Convenience and selection are the biggest reasons for the growth of e-commerce, but the tax-free shopping environment doesn't hurt. One study, done by two Georgia State University professors in 2003, estimated that collecting sales taxes would reduce online purchases by 6 percent.

If that's accurate, then traditional retailers are already losing some business because of the disparate tax treatment. They'll lose more as e-commerce continues to grow.

The sales tax has long been viewed as an efficient and fair way of raising government revenue. It shouldn't become a wedge that favors some retailers over others. If states can't stand up to Amazon on their own, then Congress must find a way to end the bullying.

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