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Philly CEO: Proposed Internet sales tax a 'nightmare'

Bill is expected to be voted on the U.S. Senate on Monday.

Dan Roitman, of Stroll, in the language-learning firm's Philly office. (Akira Suwa / Staff Photographer)
Dan Roitman, of Stroll, in the language-learning firm's Philly office. (Akira Suwa / Staff Photographer)Read more

DAN ROITMAN, chief executive of the Center City -based Stroll, is no fan of the Marketplace Fairness Act, the so-called Internet sales-tax bill expected to be voted on in the U.S. Senate on Monday.

The legislation would empower states to reach beyond their borders and compel online marketers - like Stroll - to collect state and local sales taxes for online purchases. The sales taxes then would be sent to the state where a shopper lives.

Stroll is an Internet-based marketing platform that sells audio language-learning products and had more than $80 million in revenues last year.

"I don't support an expanded online-sales tax," Roitman said. "Online retail is still a nascent industry which we should not burden with additional regulations."

Roitman said the bill essentially forces businesses to become unpaid tax collectors for states in which they have no physical presence. More than 95 percent of Stroll's online sales in 2012 were outside Pennsylvania, he said.

Opponents of the bill also say it doesn't have enough protections for small businesses.

The legislation would require states that want to collect online-sales taxes to provide free computer software to help retailers calculate the taxes. It also would exempt retailers that do less than $1 million in online sales annually.

"What a nightmare," Roitman said, adding that the bill would impose "9,646 tax regimes, which you can consider rules, on businesses and could require over 600 filings a year if you're remitting sales tax monthly and making annual filings."

I don't know about you, but that sounds pretty burdensome to me.

Under current law, states can require retailers to collect sales taxes if they have a physical presence in the state. As a result, many online sales are essentially tax-free, giving online retailers an unfair advantage over brick-and-mortar stores, say supporters of the Internet sales-tax bill.

Pennsylvania currently requires online shoppers who are not charged sales tax to report and pay use tax (which is the same rate as the sales tax) to the state. But few people actually do and it's rarely enforced.

If the proposed bill, which President Obama supports, passes both houses of Congress, online consumers are going to pay more in state and local sales tax. (The bill's fate is less certain in the House than the Senate.)

Roitman suggests that the practical effect is a "new consumption tax" on consumers.

The National Conference of State Legislatures estimates that states lost $23 billion in 2012 because they couldn't collect taxes on out-of-state sales. Pennsylvania, for example, could collect up to $400 million in additional state sales tax if the legislation were to become law.