N.C. pushes to collect tax on Web sales

North Carolina is among a growing number of states that are simplifying their tax codes in an effort to begin collecting sales tax on Internet sales.

Most Internet sales are tax free since the U.S. Supreme Court has ruled that states can't force businesses to collect tax on online sales unless it has a physical presence in a customer's state.

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States that are struggling with budget deficits during the economic downturn are looking to reverse that stance and tap into another source of tax revenue. North Carolina, for example, loses an estimated $300 million in taxes on Internet sales, and its budget is projected to be more than $1 billion in the red this year.

The state for years has tried to collect taxes on online purchases through the honor system – a line was inserted onto the state tax form to report those purchases – but Department of Revenue officials have acknowledged that the system hasn't worked.

E-commerce accounts for about 8 percent of the nation's retail sales – an estimated $204 billion last year – and is one of the few retail segments that has grown during the recession.

"I bought a TV over the Internet. I have bought a number of things on eBay," shopper Ray Allen said.

Andy Pittman, owner of Jeffreys Appliance, said the sales tax differential is unfair to businesses like his.

"It's definitely frustrating for any business owner," Pittman said. "That 6.75 percent sales tax can make a difference, so it can tip a consumer to buy online."

North Carolina is among 22 states participating in the Streamlined Sales Tax Governing Board, which is lobbying to collect taxes on online sales if states can create a uniform tax system. Many retailers have also signed onto the effort.

Second District Congressman Bob Etheridge said he expects uniform online sales tax legislation eventually will come before his Ways and Means Committee.

"It's unfair to the people who have a brick-and-mortar building in North Carolina to lose to someone in another state when they aren't getting the revenues collected," Etheridge said.

Allen said he thinks states get too greedy when they talk about including tax on to every Internet purchase.

"It's just another chance to tax, like anything else, and we have enough taxes already," he said.

Pittman said he wants a level playing field for his business, but he's not so concerned about helping the state collect taxes. A state sales tax holiday on energy-efficient appliances in November marked the three biggest sales days at Jeffreys Appliance, he said.

"It was a huge deal for us," he said.