DIRECT-marketing companies and state governments are more likely
to agree on voluntary collection of sales taxes following a ruling
last week by the United States Supreme Court.
"Both sides are giving ground," says Robert Levering, senior
vice president for catalog issues at the Direct Marketing
The ruling updates a 1967 court decision, which allowed
companies that direct market in states where they have no physical
presence not to collect state and local sales taxes from their
customers in those states.
That exemption helped to grow direct marketing from a $2.4
billion industry back then to sales today of $183 billion just for
the mail-order segment. It gave catalog companies, telemarketers,
and advertisers on cable TV shopping channels a competitive edge
over Main Street merchants. It permits tax revenues currently worth
more than $3 billion to escape state and local governments.
Last week's ruling involved North Dakota's attempt to require
sales-tax collection by Illinois-based Quill Corporation, a
mail-order vendor of office products.
One part of the ruling affirmed that requiring out-of-state
companies to collect sales taxes would place an undue burden on
Mr. Levering says that DMA members wouldn't mind collecting
sales taxes if it were not so complex. The US contains 6,500 tax
jurisdictions, with tax rates that differ even within zip code
areas. Sales tax exemptions vary from one jurisdiction to the next
according to the item sold and sometimes even according to the age
of the purchaser.
Even with a computer's assistance, a telephone clerk might have
trouble calculating the tax properly. Catalog operations would
resist filling valuable pages with tax calculation instructions for
check-writing customers. All in all, collecting taxes would be six
times as costly for a direct marketer as for a local retailer,
Direct marketers also want to avoid audits by every state.
Sears, Roebuck & Co. undergoes 18 to 20 audits a year and always
has three auditors in its Chicago headquarters, Levering says.
In the Quill case, the high court confirmed that Congress has
the power to make direct marketers collect the taxes. But don't
expect that to happen soon, lobbyists for local merchants and
direct marketers agree.
"Congress doesn't like this issue to begin with," says Jim
Goldberg, counsel for the National Association of Retail Dealers of
America (NARDA). "It's very hard to translate it into votes."
Levering points out that when Congress contemplated such a move
in 1989, his organization spurred consumers into writing 700,000
opposing letters - more than were generated by the recent outrage
over Congressional pay raises. …