Wal-Mart Stores Inc and Toys "R" Us Inc are among US retailers that have agreed to increase the taxing of sales on the Internet as states press for more authority to assess levies on Web transactions.
The retailers voluntarily began taxing this month US$500 million of Internet sales not previously collected, said John Coalson Jr., an attorney for the companies. At an average rate of 5.25 percent, US$500 million in Internet sales would raise about US$26 million in state taxes, a fraction of the almost US$100 billion in deficits that states face in the next two years.
"Our hope is that by having these companies come forward voluntarily, others will follow suit," said Carol Fisher, finance director in Missouri.
States also want more Internet transactions taxed because of rising popularity of Web shopping. A federal moratorium has barred states from requiring retailers collect sales tax unless the business has a physical presence in the state. For example, Barnes & Noble.com Inc., only assesses taxes in New Jersey, New York, Tennessee and Nevada, states where it has offices and warehouses.
Congress's restriction gave it more time sort out issues related to interstate taxation while giving nascent Internet businesses time to develop. The moratorium will lapse in November and in the meantime states have been pushing retailers to voluntarily begin the levies.
"It seems like the issue will be hotly debated and will come to a head later this year," said Kate Delhagen, director of retail research for Forrester Research Inc.
She said some traditional retailers such as Wal-Mart have been able to skip collecting taxes in most states by operating Web stores through subsidiaries with operations in a limited number of states. Other Internet retailers such as Amazon.com Inc, the largest online merchant, and catalog companies have argued against lifting restrictions, in part because of the cost of dealing with thousands of tax districts.
States face projected budget deficits of US$94 billion through 2004 as revenue plummeted in the wake of stock market losses and a stalled economic recovery, according to the National Conference of State Legislatures. The states have been trying to tap new revenue sources, including sales of merchandise on the Internet, which totaled US$43 billion last year, according to ComScore Networks Inc, a Web measurement company.
Both sides agreed to keep the details secret, said Frank Shafroth, director of state and federal relations for the National Governors Association. Shafroth wouldn't name the companies or the states in the agreement. He said there are between seven and 10 companies and they include national retailers that have online subsidiaries.
Wal-Mart, Target Corp, Toys "R" Us began collecting the tax this month, the Washington Post reported. Wal-Mart and Toys "R" Us spokeswomen confirmed that the companies have begun collecting sales taxes and would not confirm that they were part of the agreement.
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