Congressional push to level playing field for online and retail businesses for sales tax

Do you pay the state tax on your online purchases?

CLEVELAND - Internet businesses boom partially because they don't charge sales tax unless they have a presence, like a distribution center, in that state. Amazon charges tax in just six states, but states are pushing to change that. That could change your online shopping experience.

"I love Amazon. I love Overstock," college student Alexandra Murray said.

Murray does most of her shopping online because it saves her time and money.

"I've saved around $1,200 just this year alone," Murray explained.

Most online retailers don't charge sales tax. Cash-strapped states are pushing to change that since their bridges and roads are used to deliver packages bought online.

"If they change the rules and start implying these taxes they are definitely going to lose a lot of customers," Murray said.

"We've worked long and hard to get here and I hate to see something jeopardize that," said Galen Lehman, president of his family-run business, Lehman's .

The business opened in 1955 to serve the Amish community. The small store grew into a catalog business selling American made products from our past. Today, more than 50 percent of the sales come online and out of state.

"The problem is, tell me what I am supposed to charge. Right now there are so many rules I can't keep up," Lehman explained.

Lehman wants a level playing field. Right now, his retail business is hurt by the culture of online shopping.

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

Do you pay sales tax on your online purchases?

What customers don't understand is that you owe sales tax for online purchases "even if" it's not collected at the point of sale.

It's called a use tax, and you owe it at the end of the year. Only 47,251 people paid this tax to Ohio in 2011. The state collected $2.7 million, but the Ohio Council of Retail Merchants said that's a fraction of what's really owed.

"The state of Ohio is losing $200 million annually in sales tax revenue and approximately $600 million in retail activity," said Gordon M. Gough, executive vice president and chief financial officer of the Ohio Council of Retail Merchants.

Ohio tax officials said they're not proactively searching for online shoppers, but other states are sending threatening letters to businesses.

"Colorado at one point was trying to make me turn in the names of all our Colorado customers," Lehman said.

Lehman's did not turn over the names, but it cost the company attorney fees.

So why not just collect sales tax and make this problem go away? Lehman said one software company told him a program that automatically computes sales tax for all 50 states would cost $50,000 upfront and $20,000 a year after that.

"I can't afford it," Lehman explained.

The Ohio Council of Retail Merchants said some retail businesses can't afford more time to pass before we have a solution.

"There are small retailers in Ohio, small jewelry stores, who if this doesn't happen will cease to exist," Gough explained.

That's why the council is pushing Ohio congressional leaders to support two bills pending in Congress. They're billed as a way to level the playing field.

"That will give states the ability to begin collecting sales tax from retailers that don't operate in their state but have an online presence," Gough said.

A business that's worked for 50 years to preserve the simple life is eager for change as long as the new rules make this complicated problem simple.

Consumers are more reluctant even though they surprisingly owe the money even if it's not collected at the point of sale.

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