Internet companies urge New York to nix digital sales tax plan

Internet companies pushed back on some of New York Gov. Andrew M. Cuomo’s (D) proposed e-commerce taxes that would impact companies such as Uber Technologies Inc., Lyft Inc., Inc. and eBay Inc.


John Olsen, executive director of the Internet Association’s newly opened New York office, told the Legislature’s budget committees during a joint hearing that they should reduce Cuomo’s proposed tax on ride-hailing companies and nix a plan to change the tax structure for online marketplaces.


“Policymakers must begin to move past antiquated regulatory and statutory regimes and perceptions about the internet,” he said.

The association’s chief target is a new tax structure proposed by Cuomo that would require marketplace providers to collect sales tax when they facilitate a sale to a New York resident—whether or not the seller is located in the state. Under current law, outside sellers are required to collect sales tax from New York residents if the seller is located in New York.


The state expects to raise $68 million from the tax in fiscal year 2018 and $136 million in future fiscal years.


Cuomo’s proposal adds New York to a surge of states seeking to capture lost revenue from untaxed remote sales, both legislatively and administratively. The regimes are responding to a 1992 decision from the U.S. Supreme Court, Quill Corp. v. North Dakota, 504 U.S. 298, which forbids states from imposing sales and use tax collection obligations on sellers lacking a physical presence in-state.


Massachusetts Gov. Charlie Baker (R) included in his proposed budget a plan to extend sales tax collection responsibilities to certain online retailers. So far, bills related to sales tax on transactions by remote sellers have been introduced in at least 25 states.


‘New Precedent.’


“Including marketplace providers in New York state tax law would set a new precedent for discriminatory tax collection by attempting to create parity between a marketplace and a vendor that rightly has the responsibility of sales tax collection in New York,” Olsen said.


“If applied to a brick-and-mortar marketplace, for example, this proposal would require large shopping centers to collect the sales tax for all purchases made in their tenant stores,” he added. “This is hardly parity.”


While the tax only would be applied to marketplaces with at least $100 million in annual sales, Olsen predicted that some companies “may choose to limit their growth to avoid the burden of sales tax collection.”


The Business Council of New York State, the state’s largest business group, also opposes the online marketplace tax proposal. Kenneth Pokalsky, vice president of government affairs at the council, told the committees that sales tax collection on internet sales is a federal issue that is best addressed by Congress.


Several pieces of rival legislation have long been pending before Congress—the Marketplace Fairness Act, the Remote Transactions Parity Act, the No Regulation Without Representation Act, and the Online Sales Simplification Act. Sources have told Bloomberg BNA that House Speaker Paul D. Ryan’s (R-Wis.) office has met with staffers for key sponsors of remote sales tax legislation, seeking a resolution this year.


Small Business Burden


Acting State Tax Commissioner Nonie Manion defended the proposed change, saying it would relieve the tax collection burden on small businesses that sell on the marketplaces.


“The marketplaces are acting as an agent for us in collecting the taxes that are already due,” she said.


Manion said Amazon and certain other online marketplaces are already collecting the tax. She said tax privacy requirements prevented her from providing lawmakers with a list of those who are and aren’t currently collecting the tax.


A second proposed tax that drew the ire of the Internet Association is a proposal by Cuomo to tax rides from ride-hailing companies outside of New York City at a rate of 5.5 percent. The proposal would also impose a 2 percent assessment to cover workers’ compensation insurance for drivers.


Olsen said the association supports Cuomo’s plan to expand ride-sharing to areas outside of New York City, but he urged lawmakers to reduce the tax. The association supports a bill ( S. 4159) that passed the state Senate that would impose a tax of 2 percent on rides.


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