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Internet Sales Tax Bill Gaining Momentum

By - Source: The Business Journals | B 66 comments

The days of tax-free online shopping are coming to an end, it seems.

The days of tax-free sales on the Internet may soon be coming to an end. At least, that's what Rep. John Conyers, D-Mich, said during a House Judiciary Committee hearing on Tuesday. At issue was whether Congress should pass a bill -- H.R. 3179, the Marketplace Equity Act of 2011 -- that would allow states to collect sales tax from online purchases.

As it stands now, online retailers like Apple, Google and Amazon can collect sales tax only if they actually have a physical presence in the state where the customer resides. Otherwise, online shoppers are supposed to pay that sales tax -- or rather use tax -- directly to their states each April. Data shows that use taxes are easily avoided, rarely paid and difficult to enforce.

Online sales have been a sore spot for brick-and-mortar stores for years, citing an unlevel playing field between them and their online retailer counterparts. The competition is reportedly causing mom-and-pop businesses to close shop. And thanks to the introduction of Internet-connected smartphones and tablet, consumers have found an easier way to shop for the things they need, saving a trip to the local market. State and local governments, who are pushing residents to buy local, are increasingly feeling the loss of sales tax revenue.

With the proposed bill, the government isn't actually adding another tax -- it's simply forcing Internet retailers to collect taxes that are already due to each state. "I am a Republican governor that does not believe in increasing taxes,” started Gov. Bill Haslam of Tennessee. "This discussion isn’t about raising taxes or adding new taxes. This is about states having the flexibility and the authority to collect taxes that are already owed by their own in-state residents."

Back in 1992 in the case Quill v. North Dakota, the Supreme Court held that under the dormant commerce clause, a state may not compel a retailer to collect and remit the state’s sales tax if the retailer lacks a physical presence in the state. The Supreme Court felt that forcing a retailer -- especially a small business -- to collect and remit taxes would place a serious burden on the retailer’s ability to sell in interstate commerce.

Even more, the Constitution does not allow one state to reach into the pockets of another state’s retailers to exact taxation without representation. Yet now brick-and-mortar retailers are claiming that their online competitors have an unfair advantage, offering lower prices because there's no added sales tax. Tack on free shipping, and consumers have no need to leave the house.

"The Court’s decision in Quill was based on the observation that compliance with numerous taxing jurisdictions’ laws would be burdensome and confusing.  The Constitution does not require a physical presence standard as a tax collection criterion," said Judiciary Committee Chairman Lamar Smith.

The Marketplace Equity Act will replace the physical presence requirement with a requirement that state and local governments significantly simplify their tax policies if they want to collect sales taxes from out-of-state retailers. It will also contain an exception from the tax collection duty for small sellers.

"Any bill to enable sales tax collection from remote vendors should contain a robust small seller exception. This way America’s job creating small businesses do not become mere tax collection agencies for those 45 states with a sales tax," Smith said.

The Marketplace Equity Act is sponsored by Rep. Steve Womack, R-Ark., and Rep. Jackie Speier, D-Calif. The Senate Commerce Committee has scheduled a hearing next week on similar legislation.


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  • 23 Hide
    Anonymous , July 25, 2012 9:27 PM
    It wasn't taxes it was having taxes without representation -- all the colonies asked for was a place in the House of Commons.
  • 10 Hide
    Kami3k , July 25, 2012 10:16 PM
    kcorp2003please no. i'm tired of this. tax on everything! this is the main reason why we had a revolution. I enjoy buying things from newegg because i pay no tax and free shipping mostly.


    Um what? Oh god did you even bother to listen one in history class?

    "No taxation without representation"

    It wasn't just no taxation.
  • 10 Hide
    Solandri , July 25, 2012 9:32 PM
    Do note that online retailers like Amazon are do not have an advantage due to there being no taxes on interstate commerce. Rather, the states choose to put their own brick and mortar stores at a disadvantage by having a high state sales tax on intrastate commerce. Subtle distinction.

    From a financial standpoint it makes no difference, but it makes a huge difference when assigning blame for or thinking of solutions to the problem. The solution seems pretty simple to me - eliminate all sales taxes. States with sales taxes can make up the revenue by shifting it to other taxes, like income taxes. I'm kinda confused why this idea doesn't have more support. Conservatives should like it because sales taxes are a tax on businesses, and getting rid of them will help businesses. Liberals should like it because sales taxes are completely flat, and are thus some of the most regressive taxes we have. They should be all in favor of phasing out sales taxes and shifting the government revenue to a progressive income tax.
Other Comments
  • 8 Hide
    g00fysmiley , July 25, 2012 9:16 PM
    on the one hand... i don't want to have to pay sales tax on online purchases though i alrready have to on newegg, but amazon has been tax free when i buy stuff from them... on the other hand i live in a state with no income tax so i am not happy about it but will agree it will help more revenue to my state and thus help fund schools, have nice roads to drive on, fund police, fire fighters and emt's along with all the other advantages tax dollars bring to a state... i just feel like a 10 year old being forced to eat my vegtibles.. i realise they are good for me i just still don't want to do it... but i want my ice cream so i'll hold my nose put some spray cheese on it and bottome up
  • 9 Hide
    kcorp2003 , July 25, 2012 9:20 PM
    please no. i'm tired of this. tax on everything! this is the main reason why we had a revolution. I enjoy buying things from newegg because i pay no tax and free shipping mostly.
  • 23 Hide
    Anonymous , July 25, 2012 9:27 PM
    It wasn't taxes it was having taxes without representation -- all the colonies asked for was a place in the House of Commons.
  • 0 Hide
    spasmolytic46 , July 25, 2012 9:32 PM
    Oregon FTW again! http://www.movingtoportland.net/oregon/oregon-taxes
  • 10 Hide
    Solandri , July 25, 2012 9:32 PM
    Do note that online retailers like Amazon are do not have an advantage due to there being no taxes on interstate commerce. Rather, the states choose to put their own brick and mortar stores at a disadvantage by having a high state sales tax on intrastate commerce. Subtle distinction.

    From a financial standpoint it makes no difference, but it makes a huge difference when assigning blame for or thinking of solutions to the problem. The solution seems pretty simple to me - eliminate all sales taxes. States with sales taxes can make up the revenue by shifting it to other taxes, like income taxes. I'm kinda confused why this idea doesn't have more support. Conservatives should like it because sales taxes are a tax on businesses, and getting rid of them will help businesses. Liberals should like it because sales taxes are completely flat, and are thus some of the most regressive taxes we have. They should be all in favor of phasing out sales taxes and shifting the government revenue to a progressive income tax.
  • 5 Hide
    extremepcs , July 25, 2012 9:33 PM
    chromonoidIts incredible how people are rating negatively my first comments.... i think there are people dumb enough to protect the system controling/hurting them...


    Aren't you late for the Ron Paul rally?
  • -8 Hide
    whimseh , July 25, 2012 9:34 PM
    WHAT?! I saved so much money on my first build because there was no tax.
    Also I agree with what chromonoid said, the revolution is gaining momentum, just look at all the movies, video games and other countries that have had them lately.
  • 6 Hide
    Granter , July 25, 2012 9:36 PM
    As a swede, i laugh how you US people react to this....

    We pay 25% tax on everything we buy here, if it is online or in a normal store, same same.

    Tell your goverement to start focusing on paying back all the money it ows, eitherwise the dollar will be worth fuck all in a few years. Tho nothing negative for us, we swedes are already making a great deal out of both the euro and the dollar being so weak right now.
  • 3 Hide
    spasmolytic46 , July 25, 2012 9:42 PM
    chromonoidIts incredible how people are rating negatively my first comments.... i think there are people dumb enough to protect the system controling/hurting them...


    Actually as dude who has only had to pay taxes maybe twice in the last 10 to 15 years I would like to see more people paying taxes and building up our infrastructure. Building infrastructure can be a great long term investment if done right.

    You can put a bunch of people to work which means they get off unemployment and get some skills. You have people paying taxes because they work for a living. People who return to work have money and buying stuff which furthers the economic bonuses. Not to mention that inflation is always going up which means every year it gets delayed it costs more and with interest rates so low when is a better time for a state to levy investment bonds?

    Not to mention you actually get make use of the stuff you had built like transportation infrastructure, schools, etc, etc, etc...
  • 1 Hide
    greatsaltedone , July 25, 2012 9:44 PM
    Not taxing internet orders unfairly puts local stores (which have to pay overhead too) at a disadvantage and disallows local and state government to collect sales tax from economic activity happening within their jurisdiction.

    This is a good thing and has been a long time coming.

    I would, of course, prefer a progressive (income) tax over any kind of regressive (sales) tax, but that is simple not feasible in our current political climate as it does not disproportionately disadvantage the poor and middle classes. God bless America!
  • 3 Hide
    bourgeoisdude , July 25, 2012 9:48 PM
    chromonoidIts incredible how people are rating negatively my first comments.... i think there are people dumb enough to protect the system controling/hurting them...


    Maybe...or perchance it was your descriptive language or ranting that they are "dumb enough" to thumb down.
  • 8 Hide
    spasmolytic46 , July 25, 2012 9:50 PM
    greatsaltedoneI would, of course, prefer a progressive (income) tax over any kind of regressive (sales) tax, but that is simple not feasible in our current political climate as it does not disproportionately disadvantage the poor and middle classes. God bless America!


    I'll second that motion and like to add a good inheritance tax to boot for anything over a million.
  • 1 Hide
    vertigo_2000 , July 25, 2012 9:52 PM
    chromonoidIts incredible how people are rating negatively my first comments.... i think there are people dumb enough to protect the system controling/hurting them...

    I'll be honest, I down down-voted your initial 3 comments simply because you came across as a loud-mouth, d0uche-b@g not because I disagreed with your stance on the topic. Your comments provided nothing beneficial to the conversation. The more you know... [rainbow].
  • -4 Hide
    JamesSneed , July 25, 2012 9:53 PM
    I think it would simply work better if all state sales tax were made the same nationally. To take it further isn't it about time we move from an income tax to a federal sales tax anyhow? Seems like it would be so much easier to charge one simple flat rate on sales and give x percent to the state for said purchase. It just seems if we really are a capitalistic society that we would tax purchases not what people earn. I'm just not getting why we are about to complicate things so much more for online retailers. The entire federal and state tax system is just to complicated already.

    I really like the fair tax idea: http://www.fairtax.org
  • 2 Hide
    Sakkura , July 25, 2012 9:53 PM
    GranterAs a swede, i laugh how you US people react to this....We pay 25% tax on everything we buy here, if it is online or in a normal store, same same.Tell your goverement to start focusing on paying back all the money it ows, eitherwise the dollar will be worth fuck all in a few years. Tho nothing negative for us, we swedes are already making a great deal out of both the euro and the dollar being so weak right now.

    Actually no, you pay the local VAT/sales tax of whatever EU country you're buying from.

    Also, the Swedish economy is harmed by the strong Swedish currency, so it's not all good.

    As for this change... it boggles the mind that they haven't taken care of this sooner. Sure, you can cry about having to pay taxes... but the fact is that tax you avoid on the internet is just going to get levied somewhere else (income tax or higher sales tax for the stuff you still need to buy in a physical store).
  • 2 Hide
    azxcvbnm321 , July 25, 2012 9:54 PM
    Government spending is the main problem and is why we owe so much and why local governments are going bankrupt. State and local wise, public sector unions have gamed the system to give themselves outrageous pensions that can't be voided and so taxes keep on going up and up while services keep decreasing.

    This is where your money goes, not to improve schools but to pay retired school teachers. Not for current police, but to pay retired police. Pension costs are only going to increase for the next decade. Taxes can't increase fast enough so new taxes have to be invented like the soda tax and now this internet tax. Wake up people, the ridiculous pensions have to be voided and collective bargaining ended for public sector unions. Some states and municipalities have already figured this out, when will the rest?
  • 7 Hide
    vertigo_2000 , July 25, 2012 9:55 PM
    spasmolytic46I'll second that motion and like to add a good inheritance tax to boot for anything over a million.

    I disagree. Generally inheritance dollars are money that has already had tax applied to it. Just because it switches to a new owner shouldn't mean the gov't gets to take another little bit of the pie. I would agree with paying tax on any interest earned from a large inheritance, but that's it. Lottery winnings is something completely different altogether.
  • 1 Hide
    Sakkura , July 25, 2012 10:00 PM
    azxcvbnm321Government spending is the main problem and is why we owe so much and why local governments are going bankrupt. State and local wise, public sector unions have gamed the system to give themselves outrageous pensions that can't be voided and so taxes keep on going up and up while services keep decreasing. This is where your money goes, not to improve schools but to pay retired school teachers. Not for current police, but to pay retired police. Pension costs are only going to increase for the next decade. Taxes can't increase fast enough so new taxes have to be invented like the soda tax and now this internet tax. Wake up people, the ridiculous pensions have to be voided and collective bargaining ended for public sector unions. Some states and municipalities have already figured this out, when will the rest?

    This isn't a new tax. This is closing a loophole people were exploiting to illegally avoid a tax that had been there all along.
  • 1 Hide
    g00fysmiley , July 25, 2012 10:01 PM
    SolandriDo note that online retailers like Amazon are do not have an advantage due to there being no taxes on interstate commerce. Rather, the states choose to put their own brick and mortar stores at a disadvantage by having a high state sales tax on intrastate commerce. Subtle distinction.From a financial standpoint it makes no difference, but it makes a huge difference when assigning blame for or thinking of solutions to the problem. The solution seems pretty simple to me - eliminate all sales taxes. States with sales taxes can make up the revenue by shifting it to other taxes, like income taxes. I'm kinda confused why this idea doesn't have more support. Conservatives should like it because sales taxes are a tax on businesses, and getting rid of them will help businesses. Liberals should like it because sales taxes are completely flat, and are thus some of the most regressive taxes we have. They should be all in favor of phasing out sales taxes and shifting the government revenue to a progressive income tax.


    i like it in theory. the biggest part that hurts this is the sheer number of people working without paying income tax to start with. for these people the only tax they pay is sales tax. I +1'd ya fo rthe idea but in practice i just feel sales tax makes sure some people actually pay some tax. i know a few people who probably pull down a hundred grand a year at least through thier buisnesses but thier busnesses arne't even registred and they pay zero income tax ... but they buy alot of stuff so that 7.5% sales tax in florida is all they are going to ever pay. same for alot of tipped employees in the service industry. when i was a waitor i pulled 100+ per night easy working 4 nights a week but i promise you i was probably the only one reporting all my tips as income as i understood taxes are important i'd be surprised if anybody else claimed anything beyond traced credit card tips for income tax because the buisness had to report those.
  • 7 Hide
    azgard , July 25, 2012 10:07 PM
    vertigo_2000I disagree. Generally inheritance dollars are money that has already had tax applied to it. Just because it switches to a new owner shouldn't mean the gov't gets to take another little bit of the pie. I would agree with paying tax on any interest earned from a large inheritance, but that's it. Lottery winnings is something completely different altogether.


    Inheritance tax is in place to combat the growth of a plutocracy, removing it will only hasten the race of money to the top and instead of the hearing about the 10% you will be hearing about the 1%.
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