Internet sales tax: An idea whose time is now?

Ilinois Democrat Dick Durbin says new Internet tax bill will "level the playing field for local main street businesses."

A Senate bill introduced today has reignited a long-simmering debate over whether Americans should be required to pay Internet sales taxes when they go shopping online.

The legislation, which CNET reported on last week, would allow states to force Amazon.com, Overstock.com, Blue Nile, and other out-of-state online retailers to collect sales taxes.

It was introduced by Sens. Mike Enzi (R-Wyo.), Lamar Alexander (R-Tenn.), and Dick Durbin (D-Ill.) and is backed by Wal-Mart, Best Buy, Home Depot, and other companies that have stores in nearly every state and are currently required to collect sales taxes in both their physical and virtual storefronts.

"This legislation would give states the ability to close the online sales-tax loophole," Alexander said today.

The justification for their bill is a reprise of arguments that state tax collectors have made for at least a decade: they claim that online retailers that don't collect taxes are unreasonably depriving states of revenue, and that they enjoy an unfair competitive advantage over local retailers that must collect taxes at checkout time.

On the other hand, a 1992 Supreme Court ruling says that, in general, retailers currently can't be forced to collect sales tax on out-of-state shipments unless they have offices in those states. And with over 7,500 taxing jurisdictions, each with its own rules and ability to conduct audits, compliance with each is not a trivial task.

An earlier version of the legislation obtained by CNET exempted businesses that had "gross annual receipts" not exceeding $500,000.

That $500,000 exemption didn't, however, mean Internet sales. If a golf store with $500,000 in revenue from a physical storefront started selling even a small number of golf clubs on eBay, the owner would have had to begin collecting taxes for dozens of states and be subject to audits from each one as well. (In addition, assuming a profit margin of perhaps 8.3 percent, that golf store would make only $41,500 a year but still be required to collect.)

The final version (PDF) of the bill introduced today has changed the language to "gross annual receipts in total remote sales" that exceed $500,000.

That's not enough to mollify opponents of the bill. "A small business doing $500,000 in remote state sales is still a very, very small business," says Steve DelBianco of the NetChoice coalition, whose members include eBay, Overstock.com, and Yahoo.

The U.S. Small Business Administration sets a far higher cutoff for small businesses. An SBA table defining retail categories says that "hobby, toy, and game stores," for instance, qualify as small businesses if they have under $25.5 million in annual sales. A U.S. Treasury Department report (PDF) from August suggests the cutoff should be $10 million in annual revenue.

Amazon.com, which cut a deal in September to collect sales tax in California starting next fall, says it supports the Enzi-Alexander-Durbin bill, titled the Marketplace Fairness Act.

"Amazon strongly supports enactment of the Enzi-Durbin-Alexander bill and will work with Congress, retailers, and the states to get this bi-partisan legislation passed," says Paul Misener, vice president for global public policy.

But eBay, which says that the small businesses selling through its auction platform can't be expected to comply with audits from every state, doesn't. (The Marketplace Fairness Act does say that states have to undergo some tax simplification steps before they can require remote sellers to collect sales taxes.)

Tod Cohen, eBay's vice president for government relations, says: "This is another Internet sales tax bill that fails to protect small business retailers using the Internet and will unbalance the playing field between giant retailers and small business competitors."

Technically, of course, Americans in states with sales taxes are supposed to keep track of out-of-state purchases and cough up the necessary sales tax on April 15--the concept is known as a "use tax." But state tax collectors have long complained that in practice, that just doesn't happen, and that the money has remained in taxpayers' pocketbooks.

States are currently limited in their sales tax collection authority because of a 1992 U.S. Supreme Court decision in the Quill v. North Dakota case. It says retailers aren't required to collect sales taxes from customers who live in states where they don't have a physical presence, or "nexus." The justices did, however, make it clear that Congress could step in and change the rules.

That ruling came out the way it did in part because tax codes tend to be complex and vary among states and localities, with bewilderingly different tax rates associated with the same kind of product. In New Jersey, for instance, bottled water and cookies are exempt from sales tax, but bottled soda and candy are taxable. In Rhode Island, buying a mink handbag is taxed, but a mink fur coat is not.

[JamesBrown22]

Another tax on the middle class, which is the path of least resistence. The rich damn sure have their protectors and so do the poor but no one really stands up for the middle class, except for lip service. Who do you thing are going to pay most of this new tax ?

[tsigili]

No way.......more like the one thing that hasn't yet been taxed......and there can't be ANYTHING that isn't taxed......so they want to tax it!

That is simply the prelude to the death of the internet, much like TV has died, from the excessive amount of advertising on TV.

Judgment, is absent, in these kinds of decisions.

[rwsmith29456]

I guess I'm used to being taxed coming and going because I always wondered why my internet purchases aren't taxed already. If I buy something at the store down the street, I have to pay 6% state/county sales tax. I'm not knocking it, but I wonder why those that love to collect taxes have let this go by for so long. Also, It would be a big job to sort through all the differing regulations from state to state and internationally, but hey, that's what we pay taxes for! =8^ )

[One_American_________]

Dick Durbin and the Democrats are all about taking more of your money - and they care about nothing else.

The OWS protesters should seek out Dick Durbin occupy his backside with their feet.

[jechaucer]

How can any American support this bill? Don't give me the line of crap about supporting our infrastructure. We already work 5 months out of the year just for income tax. Gasoline at the pumps is heavily taxed. Then we have our "sin" taxes. Did you ever look at your cell phone bill? There are taxes on the taxes. Come on people, smarten up. We are already overtaxed as it is. The internet was a little bonus for us and perhaps a way to put a little extra in our pockets. I don't know about you, but I have a fondness for food, clothing, and shelter. Every time a new tax is proposed, I risk losing one of these "luxuries".

[realtimecoffee]

Oh hell no.

[tsigili]

If there is ANYTHING that is not already taxed......they will find it, and tax it!

Say goodbye to the internet, when it becomes taxed, over advertised, and impossible to use.

They are serving notice, that the internet will die.

[SWCitizen]

The Marketplace Fairness Act will assist many businesses of all sizes to realize unknown profits making them more competitive. The online component of my business is in its infancy. After examining possible avenues of growth I was immediately confronted by the tremendous burden of tax collection and remittance in my own state as well neighboring states. I said to myself, "there has to be a better way!" So I turned to the Internet.

There is a simple solution: TaxCloud

The statements by large Internet merchants and others continue to confuse me. My company now utilizes a PayPal checkout button seamlessly integrated with TaxCloud.net. Now my business is enabled to calculate, collect and remit sales tax for any jurisdiction in any state. It is simpler in most cases for my business to calculate and remit sales tax than to deal with shipping. If my business can manage to collect legally due sales tax simplifying my customer's lives, why is it so hard for Ebay, Overstock and their affiliates as NetChoice claims?

Technology available freely on the Internet (like TaxCloud) is more than capable of seamlessly handling sales tax calculation and remittance. Sorry everyone, the "too burdensome" argument carried merit in 1967 and in 1992 (when SCOTUS last ruled on this matter), but in the era of modern computing where Ebay maintains a dominant position, multi-jurisdictional sales tax calculation and remittance is easily accomplished.

So what is the real reason Ebay and other companies choose to evade supporting our schools, hospitals, infrastructure, libraries, public parks and so much more by refusing to easily collect and remit sales tax legally due?

It is clear that the real burden of sales tax falls upon the consumer, and there is no burden to business of any size. Any business can easily calculate, collect and remit sales tax legally due utilizing modern technology while simultaneously realizing greater efficiencies and profit. Consumers truly benefit by eliminating the burden of having to track and remit sales tax due on Internet purchases.

The Marketplace Fairness Act enables states rights to collect sales tax legally due while maintaining states individual rights to tax independently is long overdue. Remember the Boston Tea Party. Origin based sales tax fails to maintain state's Constitutional autonomous taxing authority.

Unrealized to most consumers are the true costs of permitting and embracing the illegal practice of tax evasion. This year Connecticut enacted the largest tax increase in it's history. The increase included eliminating clothing exemptions, raising the sales tax rate %.35, %1 on all luxury goods over $1000 and tax on alcohol went up %20. CT is not alone. West Virginia now taxes groceries to make up for lost sales tax revenues resulting from increasing convenience of online shopping. Rhode Island as well as doubled, that's right a %100 increase, on all park entry and parking fees. Property taxes in states such as NY have increasing at an alarming rate to maintain funding primarily for education.

Lower income wage earners are actually the hardest hit. Without the means and available credit to participate in online sales their only option is to shop locally paying increased sales tax rates, such as in CT, paying the tax bill for those who selfishly continue to evade their tax obligations. More interesting is the fact that for every million dollars in sales a brick and mortar company provides 3.8 jobs, while large online merchants provide only .8 jobs for the same amount of sales. Tax policies are not created or imposed to provide segregation of businesses. The passage of Federal legislation will level the playing field benefitting many businesses and workers in every state.

Sales tax is a fair and impartial tax billed directly to the consumer and in no way harms businesses when applied fairly and equally. Mall vacancy rates are now over %20 nationally and increasing as more brick and mortar stores continue to close their doors. As more stores close jobs are lost, homes are lost and.... you get the picture. The real burden is now upon the millions of small businesses who provide many more jobs and opportunities to find ways to compete with the large Internet retailers.

The real burden today is upon the consumer and the many small to medium sized businesses being consumed by misinformation. I discovered that by progressively employing modern technology my small start up business is now able to compete in any state without fear of nexus laws or affiliate relationships, and is more efficient and profitable. Federal Legislation will enable states rights to collect sales tax legally due providing much needed revenue, create and save many jobs, and most importantly permit states to eliminate other harmful taxing methods while simultaneously removing the many burdens confronting businesses today.

I applaud Amazon for their Integrity publicly supporting the Marketplace Fairness Act.

[ADACitizen]

To SWCitizen: Thank you for the informative information regarding internet sales tax legislation. However, I disagree with your argument. I think that all internet sales should be exempt from sales tax because consumers are paying shipping charges (for direct shipments and returns) which equals the playing field. Internet sales are vital to consumers who are elderly, disabled, or without transportation. Retailers are not modifying there facilites to make them handicap accessible or not making free deliveries to homebound consumers who are in need of products. States may not be getting the sales takes to support local and state government jobs but shipping and return contracts and charges are providing jobs in the delivery and transportation sector. The jobs that are provided at the USPS, UPS, FedEx and other areas that support this industry are very valuable to our society.