CONCORD, N.H. -- When Rondo Music moved from New Jersey to New Hampshire in 2005, company president Kurt Zentmaier was happy to discard a long row of binders stuffed with paperwork on churches, charities and other customers claiming to be exempt from paying sales tax. There was one for each letter of the alphabet, and the "S" binder alone was nearly 4 inches thick.
Because the musical instrument retailer was so close to New York, the company collected sales tax for two states. Rates varied by county, and sometimes town, and frequently changed. While that was complicated, Zentmaier says it would be nothing compared to what he and his five employees in Claremont will face if Congress passes legislation requiring shoppers to pay sales taxes for online purchases.
"Being responsible for these tax exemptions and knowing that they’re legitimate and having the proper forms on file for an audit -- it’s an issue, for sure," said Zentmaier, whose business is now exclusively online. "Collecting the tax is one thing, but the time involved in having a court battle with another state is really something a business even double my size is not going to have the time and resources for."
Currently, many online sales are essentially tax-free because states can’t require stores to collect sales taxes unless the store has a physical presence in the state. The bill, scheduled for a Senate vote Monday, would allow states to require online retailers to collect state and local sales taxes and send the money to the state where a shopper lives.
Supporters say the bill simply gives states a way to enforce current taxes and recoup lost revenue while addressing the unfair advantage Internet retailers have over brick-and-mortar stores. Opponents say the bill would impose complicated regulations on retailers and lacks adequate protections for small businesses. Businesses with less than $1 million a year in online sales would be exempt, but opponents argue that would stifle businesses that are on the cusp of expanding.
The bill is particularly unpopular in New Hampshire -- one of four states without a general sales tax -- and all four members of the state’s congressional delegation oppose it. U.S. Rep. Carol Shea-Porter has not publicly come out against it, but her spokesman said last week that she will introduce an amendment identical to one written by Sen. Jeanne Shaheen that would exempt New Hampshire retailers from the bill, and if that fails, will vote against the legislation.
Republican Sen. Kelly Ayotte, who has criticized the legislation the longest and loudest, said this week that she expects the bill will pass the Senate, but she will keep trying to stop its progress in the House.
"I’m certainly not going to give up. I’m going to work as this goes over to the House so people understand what the impact is on online businesses, not just in New Hampshire but across the country, to become the tax collectors for the states around the nation," she said.
It’s unclear how many businesses in New Hampshire would be affected. The We R Here Coalition, a national group lobbying against the bill, includes New Hampshire members ranging from a custom cabinetry shop in Nashua to a Christian bookstore in Salem. Shane Kinney, who sells high-end drums online and from his retail shop, Drum Center of Portsmouth, said he has mixed feelings about the legislation.
"It would technically put me at a bit of an advantage because it would drive people into my store. It would also put me at a disadvantage in that I would now have this new burden of collecting sales taxes," he said.
Joe Cortese, who sells coins and stamps on eBay from his Pittsfield business, Noble Spirit, is considerably more nervous, not just about his own business but also about the entire economy.
"If you have a small-business owner who can’t comply with the tax, he’s not going to invest in his business, he’s not going to take on that next employee he’s been thinking about, he’s not going to put out that advertising expense," he said. "It’ll be like taking the rubber tires off a car and replacing them with rocks. If you stop people from investing in business, it starts at the bottom and works its way to the top."
Walter Hellerstein, a University of Georgia tax law professor, rejects those arguments. He said while it’s true that New Hampshire retailers have no experience collecting sales tax, they won’t face any more of a burden than online retailers in other states. And he noted that the bill requires retailers to be provided with free software to handle the transactions, and they will only have to file one return per state.
"I can understand why a senator from a state without sales taxes would find it politically in his or her interest to oppose anything that would be regarded as pro-sales tax," he said. "But I don’t think there’s a very strong principled argument against this bill."
Ayotte countered that it’s not hard to imagine software problems or paperwork mistakes creating big headaches for small businesses.
"Once one of these counties or little towns changes their tax rate, how often are you updating this thing?" she said. "And it goes beyond the software issue. You can be audited by any other jurisdictions, so it’s also about the legal burden that can be put on these businesses."