As Connecticut considers following other states”™ lead in attempting to tax online sales, Norwalk-based Priceline.com and smaller dotcoms say the bill will do more harm than the added tax revenue will justify.
The Connecticut bill follows similar legislation introduced in 2008 in New York that remains bogged down in the courts, amid a legal challenge led by Amazon. Rhode Island has a similar law in place.
Kevin Sullivan, commissioner of the Connecticut Department of Revenue Services (DRS), supports the idea of taxing Internet purchases, but testified this month in Hartford that the current bill is imperfect and supported further work on it with the goal of reintroducing it next year. At that point, he added, the state may have a better sense of how the courts are regarding the controversy.
“The current ”¦ playing field is unfair to most in-state competitors, in-state competitors that have to add sales and use taxes either to their cost of doing business or to the price that they charge their consumers, which their competitors, in the world of cloud commerce ”“ many of them anyway ”“ do not do,” Sullivan said. “Out-of-state and offshore e-commerce is a huge and growing business sector and it thrives, in part, because it operates in this sort of netherworld of taxability and tax collect-ability. That”™s, by the way, why companies like Amazon are engaged in what I think can only be described as a death match ”“ a litigation death match all across this country, but, right now, particularly focused on our neighboring state of New York, which will be ultimately the test case for the degree of taxability.”
The Connecticut bill would specify that sales tax is due when an online retailer uses an in-state affiliate to sell its products.
“We appreciate that Connecticut has a budget gap to fill,” said Peter Millones Jr., general counsel of Priceline, in testimony on the bill submitted late last month in Hartford. “We believe that this bill isn”™t going to get you where you need to go. We realize that tourism-related taxes are attractive because, in theory, they generate most of their money from ”˜out-of staters”™ ”¦ Put simply, these ”˜out-of-staters”™ don”™t have to come to Connecticut.”
A New Canaan website operator named Kevin Mardorf said the bill would cause companies like Amazon to end those relationship with his company and others, and force them to go out of business or move to a state without such a law in place.
“We”™re kind of in the middle of this whole battle,” Mardorf said. “I”™ve been here my whole life and I don”™t like having this sit over my head ”¦ I briefly thought about moving to New Jersey, maybe. I know I can”™t move to New York or Rhode Island, and I know Massachusetts is considering similar legislation, so I don”™t know if it would safe for me to go there.”
While Connecticut has a line on its income tax forms for people to list any purchases on which they did not pay sales taxes, DRS”™ Sullivan estimated that only between 1 percent and 3 percent of filers actually do so, which he allowed could be as much an instance of lack of awareness of the rule as it could be an opportunity for tax evasion.
In some senses, Sullivan sees the online tax debate as a broader test case for the degree to which his DRS will enforce tax laws and chase down scofflaws. Legislators bristled this month after the New York Times reported that Fairfield-based General Electric was able to pay zero taxes on a net basis, due to its skill in exploiting various credits and loopholes.
“We are not here as an extraction machine,” Sullivan said. “We”™re going to do it fairly and we”™re going to do it honestly and we”™re going to do it zealously ”¦ We are working to create more of an early warning system with taxpayers so that we spot their noncompliance early, get to them early and say, ”˜You really ought to deal with this now because, trust us, it only gets worse as time goes by.”™ And it can be a small business or it can be a large business. But it”™s not in anybody”™s interest to let these things get to the point of massive litigation, massive liability, where in some cases for a small business it”™s life or death.”
