Desperate to close a more than $3.3 billion state budget deficit lawmakers are eyeing a number of taxes the state currently has trouble collecting, such as sales taxes on Internet purchases.
The so-called Amazon tax died last year, but lawmakers revived it this year to the dismay of Gov. Dannel P. Malloy’s administration.
Commissioner of Revenue Services Kevin Sullivan told the Finance, Revenue, and Bonding Committee Monday that Connecticut should wait to see what happens with some of the court challenges to similar laws passed by states like New York and Rhode Island.
Currently retailers are only responsible for collecting sales taxes in states where they have a physical presence. That means reporting Internet purchases on personal income tax forms is largely up to individuals, which means the state is probably losing millions of dollars from underreporting.
“Under the most recent court decisions it’s difficult to move full-throttle,” Malloy admitted Monday when asked about his support for the legislation. It’s an issue Malloy said he’d like to see Congress tackle.
With the Malloy administration’s lukewarm reaction to the bill it’s unclear how far the legislature will take it this year.
Last year the state’s Office of Fiscal Analysis estimated the Amazon tax could help the state collect $9.3 million annually. But Tom Caporaso of Clarus Marketing Group told the committee Monday that the legislation could drive businesses like his out of state.
He said the Amazon and Overstock.com will not do business with affiliates that reside in a state with this type of legislation.
“This not just our guess of what will happen, it is a fact,” Caporaso said. He said Rhode Island is in the process of repealing its law because no revenue increase was realized once the affiliate relationships were terminated.
“I think it’s a federal issue, not a state by state issue,” Caporaso said.
But Suzy Staubach , general manager of the Uconn Co-Op, said this type of legislation will level the playing field and help the brick and mortar stores compete against giants like Amazon.
She said just this week a mother an son came in to see if the store had a book. It did and they sat down to read it, but when the son asked if they could purchase it his mother told him they would go home and order it on the Internet.
“Ironically, that tax would have gone to pay for the schools and roads and other services she and her son expect,” Staubach said.
Staubach said if Amazon decides not to do business with Connecticut retailers there are other companies ready to fill in the gap. Opponents of the legislation, including numerous retailers, disputed the desire of other companies to come in and fill-in the gap which would be left by the retail giant Amazon.
Sullivan said Connecticut’s personal income tax forms already have an area where taxpayers are supposed to report sales tax from Internet or out-of-state purchases. He said he doesn’t have hard numbers but about 2 or 3 percent of taxpayers claim those taxes on their tax returns.
In addition to the Amazon tax, lawmakers also heard testimony on a what proponents are calling An Act Concerning Tax Fairness.
The bill which is similar to the one introduced last year cracks down on multi-state companies that shift their profits to states with no corporate income tax.
Proponents of the bill say it will bring equity to the tax code and revenue to the state. Opponents of the bill say the Department of Revenue Services already goes after corporations that try to shift profits to other states.
The Office of Fiscal Analysis estimated last year that the state could see an $88 million increase in revenue in 2011 if it implements a combined unitary reporting tax to require these multi-state corporations to report their profits in Connecticut. The number is based on data from Maryland, which recently required corporations to report data and saw a 20 percent increase in collections.
But Sullivan told the committee Monday that the Malloy administration has no position on the legislation. He said there’s not enough research out there to determine what kind of impact this type of legislation would have on some of the state’s largest employers.
“It’s a bit of a zero sum game,“ Sullivan said.
Malloy said he hasn’t studied the issue enough to give an informed opinion on it, but promised to study up on the matter soon.
He said in some ways his budget’s proposed “throwback rule” does get at some of the revenue.
Malloy estimates the “throwback rule” which will help the state collect taxes from Connecticut companies not being asked to pay taxes in other states will bring in about $20 million a year in revenues.
