Des Moines Business Record
12-18-06
A taxing situation
By Sarah Bzdega sarahbzdega@bpcdm.com
Tanya Keith, owner of Simply for Giggles children's boutique in the East Village, finds it difficult enough to keep track of sales tax differences throughout the state.
She cannot imagine how she could submit sales tax payments to all 50 states if a new law required it, which would primarily affect sales through her Web site, www.simplyforgiggles.com.
"That would be absolutely miserable," she said. "That would be really awful. I wouldn't mind paying Iowa's sales tax. This is where you bought it; this is where you pay it. … Hopefully people are sensible about it and realize it's impractical for a small business."
Yet her fear may become reality if leaders of the Streamlined Sales Tax project gain enough support to encourage national legislation.
Iowa is one of 17 states that joined the Streamlined Sales and Use Tax
Agreement last year (since then about four more have joined), which requires businesses that voluntarily join the program to submit sales taxes to participating states. The program has gained more attention as online retail sales continue to grow exponentially, diminishing local and state governments' sales tax dollars.
"The idea is that it makes a more level playing field for brick-and-mortar-type businesses, which are required to collect sales tax," said Larry Paxton, who works on the streamlined tax project for the state. "This would require the
Internet-type sales to do the same."
Since the Streamlined Sales and Use Tax Agreement became effective on Oct.
1, Iowa has collected around $4 million in sales tax from 147 out-of-state businesses. But out of the 1,058 businesses that have agreed to collect and submit sales tax, only 28 are in Iowa.
Currently sales tax is figured by the destination of the order. In Iowa, retailers are required to collect and submit sales tax for in-state purchases, and out-of-state customers who buy from an Iowa retailer are required to submit sales tax to their state and local government. Because it is hard to track every sale and ensure that each customer pays his or her few cents, the Streamlined Sales Tax project is trying to require businesses to submit the tax for the customer, which is easier to track.

To make it easier for businesses to comply, 44 states participated in an effort to simplify states' varying sales tax laws by creating a more uniform system.
But without legislation that requires businesses to collect and submit sales tax for their out-of-state buyers, the Streamlined Sales and Use Tax Agreement can only be voluntary.
Kenneth Stone, a retired Iowa State University economics professor , said one reason legislation hasn't passed so far is that a group of big retailers is lobbying against it in Washington, D.C. But he said, "There is absolutely no reason why online retailers couldn't collect sales tax no matter what state they live in and give it to the states by computer electronic deposits. It's as simple as
ABC, and I think it's the only fair thing to do. If Internet sales keep increasing, little by little sales tax (receipts) for cities like Des Moines keep decreasing."
To encourage businesses to sign up, the program offers an amnesty period for sellers who have not been contacted by member states for an audit. It also offers a software system as one of four models for tracking taxes and remitting them to the states.
Storey-Kenworthy, which sells office furniture and supplies, is one of the 28 companies that have voluntarily signed up for the program in Iowa, because "it allows us to position ourselves as a value add to our customers," said Jim
Mueller, chief financial officer of the company. "Right now, most people don't realize it, but if a customer has a product shipped into the state and the vendor doesn't collect sales tax, the customer is supposed to remit the sales tax to the state; this forces them to have an accounting department to accomplish this requirement."
Storey-Kenworthy has a tax calculation program integrated into its system that calculates sales tax based on the product's delivery address. Mueller said he collects tax for more than the states involved with the Streamlined Sales and Use
Tax Agreement, and has the ultimate goal of collecting tax in every state that has a sales tax requirement.
Mueller believes joining the program has been "a competitive advantage" for the company. Customers often ask the company to add more states to its program.
But he said, "to sign up for streamline sales tax is easy, but you have to be able to perform. Once you sign up, you have to make sure you're ready to collect and remit taxes to all 19 current states in addition to ones coming online."
Mueller believes online retailers eventually will face greater scrutiny on sales tax.
"I think as the state budgets continue to shrink," he said, "states will go after it more and more aggressively and look at companies that reside outside their boundaries to collect for companies that ship inside."

ONLINE RETAIL MOVING IN FULL FORCE
Since Tanya Keith launched a Web site a year ago to accompany her Simply for
Giggles store in the East Village, sales online have at least doubled each month.
The Web site also has attracted more customers who research her products online before going to the store to buy them. Even without her having to market her Web site.
Although online sales remain a small portion of her total sales, Keith, along with several other local retailers, realizes that a Web site can be a powerful marketing tool and business growth initiative.
"It's essential to what we're doing, because I feel people take us much more seriously and it's important to them," she said.
Many online retailers will continue to benefit from consumers' ever-growing use of the Internet, especially this holiday season.
According to a National Retail Federation survey, shoppers plan to use the
Internet for more than one-fourth (28.9 percent) of their holiday shopping. Nearly half of those surveyed plan to make at least one holiday purchase online, up 36 percent from three years ago, and 88.7 percent regularly or occasionally examine products on the Internet before buying them in a store.
On the flip side, online retailers are seeing an exponential boost in online sales.
According to another NRF survey taken Nov. 29-30, holiday retail sales were 50 percent higher for one-fourth of online retailers than the same time last year and
26 percent of retailers have had a 25 to 49 percent boost in sales compared with last year.
Although online retail continues to have double-digit growth, Kenneth Stone, a retired economics professor from Iowa State University, points out that online sales are only about 5 percent of all retail sales.
But retailers like Keith have learned that a Web site can also drive traffic to the store. Ten percent of Keith's total sales are online, but she said customers often mention that they looked at her Web site before visiting the store.
Although 60 to 65 percent of total sales occur in November and December, the
Chocolate Storybook's Web site also has become a useful tool to boost sales throughout the year, said Meg Shearer, co-owner of the store. Sales have increased every year since she launched her Web site four years ago.
"For us, it's not so much the percentage of sales as it is the number of people visiting the site, getting their ideas and calling us from there," she said.

Her actual online sales are probably around 5 to 10 percent of her total sales, she said, but the traffic to the store makes the $6,000 investment in revamping the site worth it.
Melissa Lare, owner of Darn Good Soaps, sells her homemade soap and candle products at craft shows and wholesale to retailers, but hopes her Web site, www.darngoodsoaps.com, will handle most of her sales in the future. She said online sales this year are about 18 percent of her total sales and are up from 11 percent last year.
To drive online sales, many online retailers are offering exclusive discounts, such as a percent off purchases or free shipping. According to a NRF survey, 83 percent of retailers surveyed offer free shipping compared with only 64 percent two years ago.
Local retailers have tried some exclusive online deals as well. Many offer free shipping for orders over a certain amount. Chocolate Storybook just started an email newsletter that comes out a few times a year; customers who sign up receive a 30 percent off coupon.
But for many local retailers, the Web site is a complement to their store, not the future of it. "We're a boutique with a Web site," said Keith. "We don't want to become an online discounter."