Amazon Collects Sales Tax in Calif.

The long push by brick-and-mortar retailers for Internet sales tax fairness reached a critical milestone on Saturday.

WASHINGTON — The long push by brick-and-mortar retailers for Internet sales tax fairness reached a critical milestone on Saturday, as certain online retailers such as Amazon.com began collecting and remitting sales taxes for the first time on orders made in California.

This story first appeared in the September 17, 2012 issue of WWD.  Subscribe Today.

“Modern retailers operate in a competitive environment that requires them to compete on price 24 hours a day both in the store and online,” said Sandy Kennedy, president of the Retail Industry Leaders Association. “Closing the loophole that has given Amazon and other e-tailers an unfair competitive advantage over brick-and-mortar stores is essential to a free market economy that is void of government picking winners and losers.”

The debate over taxing Web sales has taken place in Washington for more than a decade without any resolution, but states have been enacting their own laws to close what they say is a loophole that was created in 1992 in a Supreme Court ruling in Quill v. North Dakota. The majority opinion in the case stated retailers are required to collect sales tax from out-of-state customers only if they have a “physical presence” in the customer’s state.

E-tailers have relied on that decision to avoid collecting sales tax on online orders. Brick-and-mortar retailers argue that puts them at a competitive price disadvantage.

The California state legislature passed legislation last year that was aimed at closing the legal loophole and putting Internet-only companies such as Amazon.com on the same footing as brick-and-mortar stores that have been collecting and remitting sales taxes for many years.

The main provision in the California bill essentially changed the definition under existing California law of what constituted a physical presence. In Amazon’s case, the physical presence was established by an Amazon affiliate company that manufactures the Kindle e-book readers in California’s Silicon Valley. Amazon also has distribution centers in California.

California joins Texas and Pennsylvania this year in requiring Amazon to begin collecting sales taxes, and New Jersey and Virginia will require the online giant to begin doing so next year, RILA noted. But retail groups are still calling for Congress to act on pending federal legislation that has bipartisan support.

A RILA spokesman said while the states’ enactments of Internet sales tax laws are certainly a step in the right direction, some online retailers are still exempt from the different state-by-state definitions of what constitutes “nexus” and are not obligated to collect and remit sales taxes.

The National Retail Federation launched a 60-day campaign in May aimed at pressing Congress to pass legislation that would give states broad authority to collect sales taxes from e-commerce sites in the 45 states that collect sales taxes. The prospects for federal legislation passing this year are uncertain because of the presidential election, which has shortened the time Congress will be in session. Congress is expected to break at the end of next week until Election Day and return for a postelection lame-duck session.