Even though most states require their residents to pay sales tax on internet purchases, none have figured out how to enforce it, and companies such as Amazon (NASDAQ: AMZN) and eBay (NASDAQ: EBAY) have benefited hugely by the public's perception of the 6-10% cost advantage they realize by not paying the tax.
Not surprisingly, states suffering from tax shortfalls are screaming foul, and Washington is listening. According to the New York Post, a bill could be introduced this week to put the burden of tax collection on internet retailers.
The U.S. census estimated that in 2008 retail sales hit $103 billion dollars. If we assume that local taxes will also be included in the bill, at 8% roughly $8.25 billion should have flowed into state and local coffers. Amazon alone, with sales of $19 billion, could have collected $1.52 billion. According to the Rockefeller Institute, during the recession sales taxes collected by the states have dropped by 6.1%, the worst decline in half a century.
A group of internet vendors and associations are speaking out against the bill, pointing out the difficulty of administrating the collection and distribution of taxes to 50 states with 50 different tax codes. In 2002, the U.S. Supreme Court ruled that, because of this complexity, states could not force online vendors without physical presence in their states to collect sales tax.
In response, many states have agreed to a uniform tax proposal, the Streamlined Sales Tax Agreement. It would unify state tax codes and homogenize items to be taxed to avoid the confusion that led to candy bars being taxed by one state, but not another. It would also simplify tax processing.
This is a step long overdue, in my opinion. Once the burdens of tax collection are ameliorated, internet-based companies will be competing on a more level playing field with the brick and mortar stores, giving local stores a fighting chance.
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Reader Comments (Page 1 of 1)
4-20-2009 @ 3:31PM
Wes said...
Shame on BO and Congress for wanting to tax in recession like this. Here are some products and how much they will go up with this new tax and comments of outrage:
http://www.butasforme.com/2009/04/20/obama-and-congress-poised-to-end-tax-free-internet-shopping/