ALBANY — Online sales notched by small retailers who list their wares on sites such as Etsy, eBay and the Amazon Marketplace are draining tax revenue from counties across the state, local leaders say.
County governments are among the loudest cheerleaders for a proposal by Gov. Andrew Cuomo to capture some of that money by widening the sales tax to cover websites that process at least $100 million a year worth of goods destined to addresses within the state.
But Cuomo’s gambit, announced last month, is drawing complaints from sellers who say the added expense will drive away buyers.
“We’re just small farmers, and so what I do is not huge,” said Martha Johnson, who makes a few dollars here and there by selling dried flowers from Ancestral Acres, her cyberspace shop, on Etsy. She runs the small online business from her family farm in the Niagara County town of Hartland.
“The cost to ship is so much now, and this would be just another thing on top of everything else to make it hard to sell your products. I don’t want this,” she said.
A widened sales tax could rake in big money for the state and county governments. The state Division of the Budget estimates the proposal, if embraced by lawmakers considering Cuomo’s spending blueprint for the coming fiscal year, would reel in about $130 million in new revenue.
Since 2008, the state has collected tax for online sales from merchants with a physical presence in New York. That doesn’t apply to sales made by vendors on Amazon Marketplace, eBay or Etsy — outlets that have seen explosive growth in recent years.
Another Etsy merchant, jewelry maker Mark Stowe of Altona in Clinton County, said he usually agrees with Cuomo on policy matters, but he’s hoping the sales tax idea is rejected.
“This would really be unfair to the little guy,” he said. “This would squeeze me more than I’m already being squeezed.”
State officials note the tax tacked onto purchases would come out of the pockets of buyers from New York — not vendors — and would be collected by the online marketplace operator.
A lobby for brick-and-mortar stores, the Retail Council of New York State, is squarely behind the proposal. Its approximately 5,000 members range from sole proprietors to national chains.
Ted Potrikus, the council’s president, said it’s too early to tell whether Cuomo’s proposal will end up in the state budget that is expected to be finalized by March 31.
Potrikus said the council will urge lawmakers to keep it in the budget.
“This closes a loophole, and it makes sense,” he said. “It updates New York state law the same way shopping trends have been updated since 2008.”
But stiff resistance is coming from other quarters, including the Competitive Enterprise Institute, a libertarian think tank in Washington, D.C.
New York will be stopped in its tracks if it tries to collect sales taxes on items sold by vendors who have no presence in the state, it argues.
“This kind of government expansion, small business-killing regulation, and increased tax burden is the last thing a fragile economy needs,” said Jessica Margulin, a spokeswoman for the institute.
Another swipe came Thursday from Assembly Republican Leader Brian Kolb, R-Canandaigua.
“Albany doesn’t have a revenue problem, it has a spending problem and a tax addiction it refuses to address,” he said.
The proposal is similar to a national initiative, the Marketplace Fairness Act, that would allow states to collect sales taxes from remote retailers with no physical presence in their state. Nearly four years after it was introduced, there has been no agreement on the legislation in Congress.
If other states were to adopt similar taxes, Margulin said, it could subject small businesses selling goods online to tax audits by those states.
In the meantime, growing popularity of online shopping has created slumps in the share of sales tax revenues for county governments.
“If sales taxes go down, property taxes go up,” said Mark LaVigne, spokesman for the state Association of Counties. Taxes on goods underwrite the public services provided by local governments, he added.
In endorsing Cuomo’s proposal, the association estimated that storefront sales are growing at about 2 percent a year, while e-commerce is increasing by about 15 percent.
The Association of Counties reported sales tax receipts decreased for 20 of the state’s 62 counties in the last quarter of 2016, compared to the same period a year earlier.
Joe Mahoney covers the New York Statehouse for CNHI’s newspapers and websites.