State and local governments are urging Congress to allow them to collect sales taxes from online retailers, saying this will close a tax gap costing states billions of dollars per year and level the playing field for brick-and-mortar retailers.

"There is no better time than now — when local governments and states are continuing to find ways to mitigate the difficulties brought on by the financial crisis of the country over the past few years — to grant authority for remote sales tax collection," four state and local groups said in a two-page letter to leaders of the Judiciary Committee, which held a hearing on this issue Wednesday.

The groups — the Government Officers Finance Association, the National League of Cities, the National Association of Counties, and the United States Conference of Mayors — did not testify before the committee.

The National Governors Association, which also did not testify, said in a five-page statement submitted to the panel that each of the four pending bills allowing states to collect such taxes "represents the opportunity to collect more than $22 billion in sales taxes that are already owed by consumers, but not collected."

Generally, states have been blocked from requiring Internet retailers overall to collect sales taxes by a 1992 Supreme Court ruling in Quill v. North Dakota. In that case, the high court said states could not impose a tax on an office supply retailer because the retailer did not have any physical presence in the state. The court was concerned there were thousands of separate sales tax jurisdictions that could severely restrict interstate commerce if they adopted varying sales tax requirements. It said Congress was responsible for granting authority in this area.

Since then, there has been an explosive growth of the Internet, where sales have grown at a double-digit rate and are expected to exceed $250 billion by 2014, according to the NGA.

The four government groups said they are especially supportive of three pending bills: H.R. 2701 sponsored by Rep. John Conyers, D-Mich.,, its counterpart in the Senate, S. 1452, sponsored by Sen. Richard Durbin, D-Ill., and S. 1832, sponsored by Sen. Mike Enzi, R-Wyo.

However, the groups said they have "strong reservations" about H.R. 3179, sponsored by Rep. Steve Womack, R-Ark., because it would "not preserve the ability for each local government to collect sales and use taxes at their current rates" and "could eliminate local sales tax rate altogether or incorporate a blended local rate."

The NGA said it is "encouraged by" all four bills, but that they should not dictate rates or mandate the existence or removal of a sales tax.

The hearing pitted Seattle-based online retailer Amazon.com Inc. against San Jose-based eBay Inc., which connects buyers and sellers online, and Utah-based Overstock.com, another online retailer. Officials from all three companies testified before the committee.

Paul Misener, Amazon's vice president for global public policy, said his company supports legislation allowing states to collect sales taxes from Internet retailers as long as any provisions for small sellers "is kept very low." He said nearly 30% of the uncollected sales tax revenue is attributable to sellers with online sales below $150,000.

Tod Cohen, eBay's vice president and deputy general counsel for government relations, said his company's focus is to protect small-business retailers using the Internet from any new onerous tax burdens. Cohen suggested Congress adopt the Small Business Administration's definition of an online small business — one that has $30 million or less of total annual sales.

But Patrick Byrne, Overstock's chairman and chief executive, said, "In my opinion, the pending bills allow states to shirk their responsibility to administer and collect the taxes they impose on the taxable "end user." He also warned that passage of any of these bills "would curtail the emergence of the next innovative e-commerce company and poison the Internet's fertile ground for growth and innovation."

"We oppose the pending bills because they 'outsource' to retailers, without compensation, the burden of collecting taxes from residents of states where those retailers have no physical presence nexus," he said.

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