Internet Sales Tax Bill Gaining Momentum

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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  • g00fysmiley
    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
  • kcorp2003
    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.
  • It wasn't taxes it was having taxes without representation -- all the colonies asked for was a place in the House of Commons.
  • spasmolytic46
    Oregon FTW again!
  • Solandri
    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.
  • extremepcs
    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?
  • whimseh
    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.
  • Granter
    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.
  • spasmolytic46
    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...
  • greatsaltedone
    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!