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Pa. Steps Up Sales Tax Collection

Pennsylvania will collect sales tax from online retailers who maintain a physical presence in the state.

By Melissa Daniels | PA Independent

HARRISBURG — Gov. Tom Corbett‘s administration claims it will create no new taxes, but Pennsylvania wants to collect tens of millions of sales tax dollars from online shoppers this year.

As of Sept. 1, the state’s Department of Revenue requires certain online retailers to collect state sales tax. The deadline stemmed from increased enforcement the administration announced in December.

It wasn’t the law that changed, but how the state treated it.

But some say the state overstepped its boundaries. On the flip side, others say the state’s law doesn’t go far enough.

The sales tax applies to consumer transactions with online businesses with a “physical presence” — or nexus — in Pennsylvania. The physical presence includes distribution centers, staff or delivery trucks that come into the state, and those who advertise with in-state entities using sales- or clicked-based compensation methods.

The last point has some concerned the state is overreaching.

Steve DelBianco, executive director of e-commerce association The NetChoice Coalition, said the state’s implication that an advertising relationship establishes a physical presence is risky.

“Pennsylvania has been more aggressive than any other state in asserting that an out-of-state retailer has presence just because they’re paying a Pennsylvanian publisher or broadcaster,” DelBianco said.

And he argues Pennsylvania’s economy could suffer should companies pull advertising.

He also said Pennsylvania was unique in issuing this enforcement through the administration, rather than pursuing legislative action.

But because the laws regarding what types of entities are subject to the tax were already on the books, the state only needed to announce its new enforcement.

Maia Warren, spokeswoman for the state Department of Revenue, said sale-or-click based advertising relationships constitute nexus, because the online retailer derives sales from the in-state entity.

“In such a situation, the remote seller and in-state entity are working together to consummate a sale that benefits both,” she said in an email. “This goes beyond traditional advertising relationships where an advertiser is paid a flat fee for running an ad.”

The state is determining which companies do fall under the newly enforced guidelines.

If the state finds a retailer who isn’t collecting the tax and should be, it can issue an assessment, audit lien or referral to a collection agency or the Office of Attorney General.

The state said it doesn’t have a total of how many businesses have complied so far. But it expects to collect more than $42 million this fiscal year from the 6 percent sales tax.

Allegheny and Philadelphia counties will see additional windfalls, with 1 percent and 2 percent additional local sales tax rates, respectively.

One notable result is Amazon, which operates with distribution facilities in Pennsylvania, will now comply with the tax.

Ron Barnes, vice president for state affairs with the global Direct Marking Association, said collecting the online sales tax shouldn’t be left up to the states. Congress should address this issue, he said.

“Every state chooses to do some new version or variance that makes it much, much more complicated for everyone to operate on a national basis,” he said.

Beyond the web of sales tax law, it comes down to borders and jurisdiction, he said. State tax collection, by constitutional law, cannot apply to those businesses who operate completely out of state.

Dan Hayward, spokesman for sales tax fairness advocacy group Pennsylvania Alliance for Main Street Fairness, said Pennsylvania’s law is a “step in the right direction” for catching up with online retailers. The state, he said, “did what was in their power to do.”

It’s unfair to brick and mortar businesses who have to charge sales tax, while online retailers do not, he said.

But if the sales tax is going to be fair, it needs to apply to all transactions, not just those with in-state nexus. That, he said, will take federal legislation, and only then will it be fair.

“The government shouldn’t pick winners and losers when it comes to the economy,” Hayward said.

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