State law to close tax loophole
Published 6:15 pm, Thursday, April 14, 2011
HARTFORD -- State consumers who use Connecticut-based companies for their Internet purchases would pay about $9 million a year in new sales taxes under legislation approved Thursday by the General Assembly's Finance, Revenue & Bonding Committee.
The 38-14 committee vote was applauded by the 500-member Connecticut Retail Merchants Association, whose president said that state-based agents for companies like Amazon.com have an unfair advantage over traditional stores.
"I think it's really important to go forward with this," said state Rep. Patricia M. Widlitz, D-Guilford, co-chairwoman of the committee, adding that if more states go after the potential sales-tax revenue, Congress may be forced to act.
"We know that it requires federal legislation to really be successful in this effort, but if we don't start pushing the envelope and pressing the issue, we risk just standing still on this issue," Widlitz said. "This is a loophole that needs to be closed."
Other states that have adopted similar laws include Illinois, Vermont, Arkansas, North Carolina, Rhode Island, Colorado and New York, where a lawsuit over the issue is pending.
Although state law requires residents to pay taxes on all their Internet and catalog purchases, state officials believe only a fraction is actually remitted on annual tax forms filed with the state Department of Revenue Services.
The DRS reported Thursday that in 2009 12,676 taxpayers paid $8.27 million in use taxes for Internet and catalog sales. Kevin B. Sullivan, commissioner of the DRS, recently asked lawmakers to delay the bill for a year to study the issue and draft comprehensive legislation for next year.
"We fully understand that this bill will not cure the issue of Internet sales-tax avoidance, but it will without a doubt help all retailers that continue to play by the rules but have to compete with online retailers who do not have to collect and remit sales tax," said Tim Phelan, president of the retailer group.
Opponents of the legislation, mostly minority Republicans, said the state should wait for Congress to develop a nationwide policy on gathering taxes from Internet sales.
Studies of nationwide online sales total about $3.4 trillion a year, with the potential for $10 billion in sales taxes, if they were collected. But Amazon has threatened to severe its ties with state companies if Connecticut adopts the legislation.
"I think we should be addressing this on a global level," said state Sen. Antonietta Boucher, R-Wilton, a committee member who voted against the bill.
State Rep. Chris Perone, D-Norwalk, who also voted against it, said that New England states, at the least, should band together. "In my mind it just seems a little premature to move this bill along," Perone said.
"I think all of us realize what the disease is and all of us are in search of the cure," said state Sen. Andrew W. Roraback, R-Goshen, ranking member of the committee. "I don't think we've gotten it right if our tax department says this isn't going to work. My hope is that we can work with our tax department to come up with a policy that everyone signs on to."
State Sen. L. Scott Frantz, R-Greenwich, said that for a comprehensive plan, Congress needs to act. "I think we'd all agree it's a bit of a can of worms," he said. "We would immediately end up in the courts and that's something that Connecticut just can't afford."
He said he hopes that state residents pay the 6 percent on their catalog and Internet sales.
"They already have an obligation under our law," agreed state Sen. Eileen M. Daily, D-Waterford, co-chairwoman of the committee.