Web Sales Taxes Spreading

Some major retailers this week began voluntarily charging online sales taxes in 37 states and the District of Columbia, a move that could reshape the way business is done on the Web.

Participating brick-and-mortar retailers, such as Wal-Mart, Toys "R" Us and Target, hope their first steps will help bolster the states' efforts to mandate online sales taxes, leveling the playing field between themselves and Internet-only rivals.

Under current laws, catalog companies and pure online retailers only have to charge sales taxes in states where they have operations, such as a warehouse or distribution facility. Nationwide brick-and-mortar retailers say this puts them at a disadvantage in states where catalog and Internet-only companies do not have operations.

"We can't have a system that discriminates some vendors in favor of others," said Frank Shafroth, director of state-federal relations for the National Governors Association.

The major retailers said the move also helps them integrate their online and brick-and-mortar operations.

The states, meanwhile, are eager to plug their budget shortfalls with help from Internet sales taxes. Last year, Internet sales ballooned to $79 billion, or about 3 percent of all retail sales, according to Forrester Research.

The attorney who represented the merchants, John Coalson of the Atlanta firm Alston & Bird, said he expects five more states to join in the 37-state program begun this week. He would not name the states.

However, representatives of 34 states and the District of Columbia met in Tampa last month to discuss taxing Internet sales. Those states are: Alabama, Arizona, Arkansas, Florida, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Michigan, Minnesota, Missouri, Nebraska, Nevada, New Jersey, North Carolina, North Dakota, Ohio, Oklahoma,Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin and Wyoming.

Alaska, Delaware, Montana, New Hampshire, and Oregon do not collect sales tax.

Representatives for pure online retailers and catalog companies called the pact a non-starter.

"This is just a marketing ploy," said Lou Mastria, a spokesman at the Direct Marketing Association, which represents catalogs and pure online retailers. He believes brick-and-mortar retailers should be forced to charge taxes online in any state where they have a store.

Mastria also said that pure online players and small catalog companies do not have the resources to handle complicated state and local tax laws.