LANSING – Legislation to require Internet retailers to collect Michigan sales tax on purchases made by state residents was opposed by several operators of small sites, saying the legislation could dramatically hurt their business, in the second hearing before the House Tax Policy Committee held Wednesday.

But the committee held off acting on HB 5004 and HB 5005 .

The bills would essentially require any entity that has retail sales of at least $10,000 to collect and remit sales taxes. The bills were drafted to match legislation in New York state.

A number of states have adopted legislation to require Internet retailers to collect and remit taxes, but one witness representing America Online said already some of those states are considering dropping the legislation. Because Amazon.com and other large online retailers will drop affiliate sites in states that require taxes be collected, those states have actually seen revenues drop, said William Castleberry.

The fear of being cut off from retailers such as Amazon was the major reason that Melissa Buckles of Troy and Corrie Cole of Livonia both came out against the bills.

Both women set up websites that employ coupons and discounts – Buckles is bargainshoppermom.com and Cole’s is centsablemomma.com – and make their revenue through both advertising and with monies repaid to them if a shopper purchases an item by connecting through their site.

Both also said the websites provide a significant portion of their household income.

But if the state adopts the bills, then many of the top online retailers, particularly Amazon, will drop their affiliates. “If this ends up passing, everything I’ve done will be lost,” said Buckles.

And Cole said it would be “devastating to my business to lose this income.”

Castleberry said Rhode Island is a state considering dropping its requirement that the firms collect and remit the taxes. Because the retailer dropped all its Ocean State affiliates, it still sells to Rhode Island residents but does not collect or remit any taxes for that state.

AOL would have to collect taxes in Michigan, because it has a physical presence in the state, he said. But ultimately the issue needs a federal solution that affects all states.

And Jim Hallan, president and CEO of the Michigan Retailers Association, said that while it is true that Amazon would drop affiliate agreements, other top retailers such as Gap, Sears and Lowes would not drop those affiliates.

He also said that changes in software have made it easy for retailers to collect and remit sales taxes.

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