Store group urges law to streamline sales tax

A woman walks with a shopping bag in Los Angeles, California December 24, 2008.

NEW YORK (Reuters) - A trade group representing U.S. shopping centers on Wednesday called on the U.S. government to enact legislation to prevent states and local governments from losing sales tax on Internet purchases.

Citing a study from the University of Tennessee that predicts local government sales tax revenue will fall by as much as $12 billion by 2012 due to the inability to capture Internet sales, the International Council of Shopping Center Inc called for a level playing field for online and bricks and mortar retailers.

Coming at a time when public finances are being stretched by the recession, the study "does not bode well for the fiscal well-being of states and local governments," ICSC senior vice president of global public policy Betsy Laird said in a statement.

"Clearly the results of the study point to the need for Congress to enact legislation that will allow states to collect taxes from out-of-state sellers while promoting simplification and fairness in the administration and collection of sales and use taxes," she said.

State and local government officials have lobbied for years for a streamlining of sales tax collections to allow them to capture the tax on virtual and remote purchases.

That effort came after the U.S. Supreme Court ruled in 1992 that retailers that use catalogs and other means to sell products to customers in another state could not reasonably be required to comply with the myriad different tax rates and rules in force across thousands of state, county and city jurisdictions.

As a result, a state may only require remittance of sales taxes from such merchants if the merchant has a physical presence in the state.

In 2003, lawmakers introduced a bill that would reward states that implement a streamlined tax pact but to date, only 23 states have complied.

"Firms change their best business practices to avoid creating a collection responsibility in certain states," said the Tennessee University study, authored by three professors of economics and business.

"Firms choose to locate their selling or warehousing activities to avoid creating nexus rather than locating where they can operate most efficiently," it said.

Local vendors are further disadvantaged by the fact that consumers often use Main Street stores to browse for products then buy them online to avoid the sales tax, the report said.

"In the baseline case, we estimate that annual national state and local sales tax losses on e-commerce will grow to $11.4 billion by 2012 for a six-year total loss of $52 billion," it said.

(Reporting by Ciara Linnane; Editing by James Dalgleish)