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Spokane, Washington  Est. May 19, 1883

Taxes On Mail-Order Sales Sought Rep. Kellogg Says Catalog Firms Should Also Collect Sales Taxes

Idahoans avoid paying $13.4 million in sales tax each year by buying from out-of-state mail order companies, state Rep. Hilde Kellogg said Monday.

Kellogg, R-Post Falls, wants that to change.

She’s asking the Legislature to formally request a federal law requiring such companies to collect the state’s 5 percent sales tax, as retail stores already do.

“It’s unfair competition,” she said.

Nationwide, Kellogg said, states are losing out on $4.57 billion in uncollected sales tax from mail order businesses.

“As busy as we are, we’re doing a lot more shopping with catalogs,” she said.

Under state law, consumers are supposed to calculate - and pay - a 5 percent “use tax” for items they didn’t pay sales tax on. Businesses do this, but very few individuals do.

“The compliance is very low and enforcement is extraordinarily difficult,” said Ted Spangler, a deputy attorney general assigned to the state Tax Commission. “Tracking down the use tax is virtually impossible.”

“It’s almost a joke,” said Tim Brennan, president of the Idaho Retailers’ Association.

Mail order companies with stores or warehouses in Idaho, Spangler said, do calculate and collect sales tax from Idahoans. But the vast majority of mail order companies don’t have any Idaho presence.

Brennan said Idaho retailers show “pretty much universal” support for federal legislation such as Kellogg is requesting. They feel out-of-state catalog companies, home shopping networks and computer mail order companies have an unfair advantage.

But in Sandpoint, catalog company president Dennis Pence said such a law would be impractical. His company, Coldwater Creek, sells nature-related clothing, jewelry and gifts. During the peak Christmas season, it employs 300 people.

“We would fight it (a federal law) very aggressively,” said Pence. “What Hilde may not be cognizant of is that there are hundreds and hundreds of taxing entities, not just the 50 states.”

For example, he said, clothing is taxed in New Jersey and not in nearby New York. Jewelry is taxed in both states.

“We’d probably need to hire a fulltime computer programmer to do it,” Pence said. “That aside, the customer couldn’t figure it out. There would be so many exceptions that it would make shopping by mail very, very difficult.”

Pence said, however, he probably would support a flat tax.

He conceded that catalog companies have a competitive advantage on big-ticket items, like electronics and cameras. But for most goods, Pence said, the savings in the 5 percent sales tax is outweighed by shipping costs. In Coldwater Creek’s case, he said, shipping adds about 9 percent to an item’s cost.

Brennan, of the retailers’ association, said catalog companies or shopping networks can quickly calculate local taxes with computers.

“Sears Roebuck does it. J.C. Penney does it,” he said. “There’s no question that would be a cumbersome business function. But they should have to accept that as a necessary part of doing business. Look at the unfairness of the way it is.”

He criticized Pence’s argument that shipping charges strip away any competitive advantage.

“Every merchant in Idaho has to pay freight and handling. He has overhead catalog sales don’t. All they have to do is print a catalog. They don’t have to keep shelves stocked.”

Brennan said Congress has considered similar legislation before, but never passed it. He attributes that to a “powerful mail order lobby” in Washington, D.C.

In 1992, the U.S. Supreme ruled in a North Dakota case that Congress, under its right to regulate interstate commerce, can require mail order companies to collect sales taxes. Rep. Kellogg and Brennan point to that ruling as ammunition in their drive for federal legislation.

Last year in the U.S. Senate, lawmakers considered “The Fairness for Main Street Business Act,” which would have allowed state and local jurisdictions to require collection of sales tax. To be affected, a company had to sell more than $3 million in goods per year, with more than $100,000 in sales to the state in question. The bill was never voted on.

“It had significant support in the Senate last year,” said Spangler. “But the Senate got tied in knots over several issues last year, and that was one there wasn’t time for.”

Eventually, he thinks, such a law is inevitable.

“Very slowly, there seems to be impetus growing for this,” he said. “We’ve got this growing hole in our tax base.”