Internet sales tax argument is heating up

Some Democrats in the House are poised to introduce a new bill to tax online purchases. The argument over Internet sales taxes has been raging for years, and it pits online sellers like Amazon and eBay against traditional retailers like Target and Wal-Mart.

At the moment, Americans who shop over the Internet from out-of-state vendors usually aren’t required to pay sales taxes. Californians buying books from or cameras from Manhattan’s B&H Photo, for example, won’t be required to cough up the sales taxes that they would if shopping at a local mall.

This is hardly a new debate: pro-tax officials and state governments have been pressing Congress to require taxes to be collected for a decade or so. They argue that reduced sales tax revenue threatens budgets for schools and police, and say that, as a matter of fairness, online retailers should be forced to collect the same taxes that brick-and-mortar retailers do.

But with states scrambling for new sources of revenue during what may be a double-dip recession, pro-tax lobbyists are hoping that they’ll have better luck this year. The National Conference of State Legislatures applauded Delahunt’s legislation, saying he should be commended for allowing states to collect as much as $23 billion in new taxes.

So did the Retail Industry Leaders Association, whose tax committee members include Wal-Mart, Home Depot, Costco, AutoZone, Target, and IKEA.

On the other side are groups that advocate for lower taxes and retailers including and eBay. In a statement on Friday, Tod Cohen, eBay’s vice president for government relations said: “At a time when unemployment rates are high and small businesses across the country are closing shop, we are confident that Congress will protect small Internet retailers and the consumers they serve from another Internet tax scheme.”

The absence of a tax online has been very helpful in the growth of the Internet and online sales. It makes thing much easier for small sellers as well, so any change would need to be carefully examined.

That said, online sales are now huge, and it does hurt revenues for state governments.

If they move forward, the key would be to craft a system that has one standard for all states, so every online retailer isn’t subject to 50 different state regulations. That alone would kill many online businesses.

Perhaps they should have a single national rate, like 5%, and the states get money based upon the location of the purchaser for each transaction. Retailers would simply collect the tax and then report transactions and the locations of the buyer.


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