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The PA Chamber, in partnership with a coalition of business groups, is urging the General Assembly to oppose the repeal of the 1 percent vendor discount as proposed by Gov. Ed Rendell in his 2010-11 state budget.

Currently, businesses that collect and remit sales tax receive a 1 percent allowance to mitigate a portion of their administrative costs.

"Businesses are mandated to essentially act as the state's tax collector and they get a modest amount of money to cover some of their expenses," PA Chamber Government Affairs Director John Callahan said. "In many cases, this discount does not adequately compensate businesses for collecting and remitting the tax; taking it away would add to the financial burdens on job creators."

A national study found that retailers can incur costs up to 13.47 percent for their handling of state sales tax. For example, if a business owner generates $500,000 in sales a year, he would collect about $30,000 in sales tax. Using 13 percent as an average, it would cost that business $3,900 in administrative costs. However, the vendor allowance would only reimburse the owner $300, leaving a difference of $3,600.

"Clearly, the vendor discount is not a windfall for businesses," Callahan said. "But it does provide justifiable compensation to cover a small portion of the costs incurred by collecting and remitting the sales tax."

In its letter to lawmakers, the business coalition stressed that while technology has improved the ease of collecting and remitting sales tax, businesses incur costs to pay for those technologies. Additionally, there are costs associated with calculating, recording, collecting and remitting sales taxes and fees.

Another overlooked component of this issue is the hidden cost of debit and credit card fees. The fees that credit card companies and banks charge for the privilege of using their cards range from 1 percent to 3 percent of the total sales amount. So if the average fee is 2 percent, a retailer pays $2 out of pocket for every $100 in sales tax that is charged to the card.

The governor proposes applying the revenue generated from the removal of the vendor discount to the Stimulus Transition Reserve Fund, which would be created to address budget gaps when Pennsylvania stops receiving federal stimulus funds and is slammed with public pension obligations.