Businesses not required to collect sales tax, but you're still expected to pay it

WASHINGTON - Should you pay sales tax when you purchase an item online? That’s the question Capitol Hill is debating Tuesday as the issue of online sales tax heats up.

Three bills dealing with the sales tax issue are making their way through Congress, and the Judiciary Committee is holding a hearing on The Marketplace Equity Act. Judiciary Committee Chairman Lamar Smith said the bill would require states to significantly simplify their tax policies if they want out of state retailers to pay sales tax. Smaller sellers would be exempted from the change.

The bill has bipartisan support, and representatives from both sides of the House spoke at the hearing.

Right now, companies are only required to collect sales tax from a customer if the business has a physical presence in that state.

Even if a business doesn’t collect sales tax, you still owe it to the State of Ohio. It’s called a “use” tax. Some states are pressuring businesses to turn over lists of all their customers so they can collect that use tax.

NewsChannel5 reported on this issue last week after visiting Lehman's, a northeast Ohio business with a retail and online business. Their retail store is hurt by the lack of sales tax online. If a sales tax law passes, their online sales may be hurt.

“I’ve had customers tell me I will buy this product if you don’t charge me sales tax. I’m like it’s the law. They leave the store and I lose a sale,” said President Galen Lehman.

The National Retail Federation is pushing for a system that levels the playing field between online and retail businesses.

Lehman wants something to happen so he isn’t pressured by states anymore to turn over names, which he hasn’t done. He wants to do the right thing, he just doesn’t want a complicated or expensive solution.

“The problem is tell me what I’m supposed to charge. Right now there are so many rules I can’t keep up,” Lehman explained.

Some states see this as a big budget boost since so few people are paying a use tax on their state tax return. In Ohio, only 47-thousand people paid the tax to the state in 2011. The money collected totaled $2.7 million.

The Ohio Council of Retail Merchants said the state loses $200 million annually in sales tax revenue and approximately $600 million in retail activity.

“Allowing states to capture remote sales tax revenue equitably regardless of a retailer’s business model is meaningful pro-small business reform of a broken collection system. This reform is necessary to reduce the uncertainty currently rampant as shown by state-by-state attempts to nexus for collection purposes artificially stifling the growth and expansion of small and medium sized businesses across the country,” said David French, National Retail Federation Senior Vice President of Government Relations.

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