By Brian Tumulty
Gannett Washington Bureau
WASHINGTON - New York state government, counties and cities could receive a revenue windfall under a national online sales tax proposal working its way through Congress.
But there's a catch: For New York to opt in, its many taxing jurisdictions would have to agree on what's subject to sales tax, and that wouldn't be easy.
The congressional legislation, called the Marketplace Fairness Act, would allow states to collect sales taxes on purchases made online anywhere in the country from companies with at least $1 million in annual gross receipts within the state.
To take advantage of the opportunity, states would have to simplify their tax systems to lessen the burden on retailers.
That's the challenge for New York.
The state, New York City, Wayne County, Tioga County and several other counties don't tax clothing and footwear sales under $110, but most counties and cities do.
More than 60 jurisdictions tax all clothing and footwear sales, including Albany, Broome, Chemung, Dutchess, Erie, Monroe, Nassau, Putnam, Rockland, Suffolk and Westchester counties, and the cities of Corning, Ithaca, Mount Vernon, New Rochelle, Utica, White Plains and Yonkers.
Peter Baines, executive director of the New York State Conference of Mayors, thinks the opportunity to increase sales tax revenue without changing the tax rate could motivate the state Legislature, governor and local governments to harmonize on what's subject to sales tax.
At least two states are looking to the congressional legislation as an opportunity to reduce tax rates. Rhode Island plans to lower its overall sales tax rate and Ohio plans to cut its state income tax.
Baines said the congressional legislation would be a "net positive'' for the state.
That's also the view of Ted Potrikus, executive vice president of the Retail Council of New York State, which represents 2,000 retailers ranging from mom-and-pop stores to retail giants such as Macys, Wal-Mart, Home Depot and Target.
"The notion of fairness is what shines more brightly to us than the potential revenue to the state,'' Potrikus said. "You've got small bookstores and small everything stores - those that are left - that are competing with out-of-state retailers who don't have to charge sales tax.''
Peter Sides, whose family employs about 100 employees at several music stories in Pennsylvania and New York's Southern Tier, said there's no reason to oppose the congressional legislation, unless you want to let online retailers maintain their competitive sales tax advantage over brick-and-mortar stores.
Sides said his family's stores already do some online business, mostly my selling used music equipment on eBay and signing people up for music lessons on each store's web site. Collecting sales tax has not been difficult, he said.
Under the congressional legislation, each state would decide whether to collect sales tax on online transactions. Internet retailers who were told by states to begin charging sales tax would get free software from the states to help them comply.
New York could opt instead to keep its current "Amazon tax,'' which applies to some, but not all, ecommerce retailers. Amazon and Zappos collect sales tax on purchases made by New Yorkers, but Overstock.com does not.
New York's two U.S. senators support the congressional legislation. Gov. Andrew Cuomo's office did not respond to requests for his position.
A spokeswoman for Sen. Kirsten Gillibrand, D-N.Y., described the Marketplace Fairness Act as a "common-sense, bipartisan bill to close an unfair tax loophole and level the playing field for New York businesses.''
The Senate is poised to pass the legislation this week. The House could take it up in the next few months.
The National Governors Association and a coalition of traditional retailers back the proposal. They note that it would not increase taxes but would only allow states to require compliance with a tax that consumers are supposed to be tracking and paying themselves - on their income tax returns - but rarely do.
Amazon also supports the proposal. Its most prominent opponent is eBay.
The Amazon tax has been upheld by the New York State Court of Appeals. The state collected $150 million from the tax in the fiscal year that ended March 31, according to the state Department of Taxation and Finance.
Potrikus of the New York retail council said there's no guarantee the state's Amazon tax could survive a challenge before the U.S. Supreme Court.
If the Marketplace Fairness Act becomes law, Amazon wants New York to opt in, according to Amazon spokesman Ty Rogers.
"The ruling by the New York Court of Appeals conflicts with both the U.S. Supreme Court's precedents and with contrary decisions by other state courts that have looked at the same issue,'' Rogers said. "Given the confusion reflected by this decision, we believe the best way to effectively fix this problem is through passage of the Marketplace Fairness Act by Congress."
Overstock.com also wants New York to take advantage of the online sales tax option, if it becomes law.
Jonathan Johnson, an Overstock.com executive, said his company "is not a big fan'' of the congressional legislation because it would allow states such as New York to maintain their own versions of an Internet tax instead of creating a uniform national system.
"That is our primary objection to the bill,'' Johnson said. "The Supreme Court has invited Congress to fix this once and for all.''