Deal to Close Mail-Order Tax Loophole Said to Be Imminent

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The coming holiday season could be the last for a cherished loophole that lets mail-order shoppers avoid paying sales taxes on purchases from out-of-state companies.

Under an agreement negotiated by officials of the biggest states and a trade group for the mail-order industry, many merchants would begin collecting sales taxes on such transactions. The agreement, which is expected to be announced soon, would cost consumers about $1.2 billion a year, representatives of both sides in the talks said.

Legally, such purchases are subject to the same tax as a customer's transactions at the local department store. But tax collectors have had no way to compel out-of-state merchants to collect the tax on their behalf, and catalog retailers and other direct marketers have generally shunned the task. But big mail-order sellers like Lands' End and L.L. Bean have sought such an agreement, and the talks are being closely watched by other companies that sell through the mail, by telephone or cable television, or over the Internet, including Dell Computer, Microwarehouse, Gateway 2000 and American Express. The companies assert that they will lose little in sales by ending a tax break their customers have long enjoyed, according to Robert Levering, a vice president of the Direct Marketing Association, which represents the mail-order companies in the negotiations. Levering said he expected the agreement to be in effect in the biggest states in about a year. Though a business could preserve a price advantage by continuing to refuse to collect sales taxes, such a refusal would be an invitation to tax collectors in various states to audit its sales. Still, retailing experts say some categories of businesses are likely to opt out of the voluntary agreement, including companies that sell low-cost goods or products with thin profit margins, such as toys and certain home-computing items. …