Magid: Time For Uniform Online Sales Tax

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At the risk of sounding like I oppose online commerce and support high taxes, I have to agree with New York Gov. Eliot Spitzer, who wants out-of-state e-tailers like to collect state sales tax on goods delivered to New York residents.

Paul Misener, Amazon's vice president of global public policy, called the New York proposal "a radical departure from anything that's being done anywhere in the country," according to the Associated Press.

Radical or not, its time has come. Yes, such a plan would cost me money - I'm a heavy user of Amazon and other e-tailing sites. But I can't think of any good reason why customers of online retailers should shop tax-free while people who spend their money locally have to pay sales tax.

Actually, it's more complicated than that. Online retailers that also have a physical presence in a state do have to collect sales tax. If you buy something from, or, you will pay California tax even if the item is shipped from an out-of-state warehouse because those companies have stores in California. But because doesn't have a brick-and-mortar presence in California, it's not obligated to collect sales taxes.

It can get even more absurd. While Californians, New Yorkers and residents of most other states don't have to pay sales tax on purchases from, people who live in Kansas, Kentucky, North Dakota or Washington are subject to tax. That's because Amazon has offices, warehouses or other facilities in those states. But if you buy from one of Amazon's associate merchants that does have a presence here, you might have to pay taxes after all.

It's starting to remind me of the complicated and ill-fated "snack tax" that required grocery stores to collect taxes on certain size packages of snack foods and not others.

By exempting out-of-state Internet retailers from collecting tax, the state is essentially discriminating in their favor, over businesses with a local presence which not only collect local and state taxes, but also pay local and state taxes themselves, hire local people who pay all sorts of taxes and also pay rent to local landlords who, in turn, pay property and income taxes that help support our schools and other services.

I love buying things online but I also love how local merchants add to the fabric of our communities. The business climate for independently owned local stores is tough enough. Why should they be forced to charge customers 8 percent more as a punishment for doing business in our communities and contributing to our local economy and job market?

California and New York taxpayers are supposed to pay sales tax on out-of-state Internet purchases, but the burden is on the taxpayer, not the online merchant. In both states, when you fill out your state return, you're asked to report and pay tax on out-of-state purchases, but tax authorities have no effective way to determine how much individuals really paid to out-of-state merchants. Under current law, it's a tax that's almost impossible to collect.

I can think of a few arguments in favor of the status quo. Some might say e-commerce is in its infancy and taxing online purchases would put an undue burden on this fragile new industry. An argument could also be made that we have to pay shipping when we order online, which is like a tax on Internet purchases. But local stores have to pay shipping charges on items that they stock and the cost of shipping to the store is reflected in the retail price. So, unless the government wants to offer tax credits for all shipping charges (an absurd idea), then this argument doesn't hold much water.

And please don't mistake sales tax for a "tax on the Internet." Sales tax on Internet purchases has nothing to do with taxing Internet access - something that Congress has consistently banned.

Fair is fair. If the cost of maintaining our schools, police and other vital services requires that we pay sales tax at favorite local stores, then we should also have to pay the same tax if we order from an out-of-state e-tailer.

A syndicated technology columnist for over two decades, Larry Magid serves as on air Technology Analyst for CBS Radio News. His technology reports can be heard several times a week on the CBS Radio Network. Magid is the author of several books including "The Little PC Book."
By Larry Magid