RALEIGH -- Online shoppers could start having to pay a 7.75 percent sales tax for online purchases if Internet-based businesses go for the N.C. Department of Revenue's latest attempt to collect sales taxes.
On Friday the revenue department proposed amnesty from back taxes and late-payment penalties to more than 350 out-of-state businesses. The state's Internet Transactions Resolution Program is open to out-of-state Internet sites that don't pay North Carolina's state and local sales taxes on online sales to North Carolina customers.
Revenue Secretary Kenneth Lay said those businesses have until Aug. 31 to sign the agreement and start collecting state and local sales tax from state customers. The offer is the result of discussions between the revenue department and e-commerce businesses.
"We are going to be asking quite a number of them to participate in the program," said revenue Secretary Kenneth Lay. "We have positive indications that several will sign up."
Lay said the state revenue department wants all businesses to play by the same rules. Businesses that don't collect the state and local sales tax have an unfair advantage over in-state merchants that add the sales tax to the cost of their products. In most places, including Triangle counties, the tax comes to 7.75 percent, but in a handful of counties it's 8 percent.
In this state, 180,066 businesses are registered to collect sales and use taxes and send the money to state government.
In online transactions with out-of-state retailers, however, the legal responsibility for paying sales taxes falls to the customer, not to the merchant. Few residents follow the law and add the sales tax to their state tax returns.
As online sales gain in popularity, state governments lose more tax revenue each year from businesses that don't collect sales tax. According to University of Tennessee estimates cited by the revenue department, North Carolina will lose nearly $162 million in sales-tax revenue this year from businesses that don't collect the tax on North Carolina transactions. The loss is expected to grow to nearly $214 million in 2012.
One of the nation's biggest online retailers, Amazon.com, is fighting the state's tax collection efforts. This week the online giant sued to block the state's efforts to collect information on online sales. The revenue department is auditing Amazon.com to determine how much it owes the state in uncollected sales tax.
Law is uncertain
The question of sales taxes is caught up in legal uncertainty.
The U.S. Supreme Court ruled nearly two decades ago that out-of-state merchants don't have to pay sales tax unless they have a presence in the state.
One issue in dispute is what constitutes a presence. Last year, the N.C. General Assembly passed a law saying out-of-state online retailers have to pay sales tax if they make sales through online referrals, called click-throughs or affiliate programs, from local Web sites. In a click-through agreement, Web site operators make small commissions on sales they help generate by directing traffic to an online merchant. Under law in this state and elsewhere, the local Web site is presumed to be the local presence.
The state revenue department has identified more than 350 online retailers that have such online referral or affiliate programs. But Lay wouldn't name any of the companies the state hopes will sign to the amnesty deal.
Few likely to sign up?
Craig Shearman, a spokesman for the National Retail Federation in Washington, said the trade group represents all types of retailers and agrees with the principle that all should pay state and local sales taxes. Some 7,600 local jurisdictions collect sales tax, in addition to 45 states, making collection difficult for an online business, he said.
Shearman said he doubted many would sign up for the North Carolina amnesty deal. Laws such as North Carolina's are under legal assault and might be struck down.
"I don't expect many companies to write a check based on a sales tax law that is legally questionable," he said.
