Online Sales Tax Law
Posted on April 24, 2013
Members of the U.S. Senate are joining with big business to impose billions of dollars in sales taxes on people who buy goods over the Internet. This annual ritual to hammer companies who do business online has a fair chance of approval this year as local and state governments make their case that they need more money to spend on government.
The Marketplace Fairness Act would bind online companies to act as tax collectors for 45 states that collect taxes on sales. That means that many consumers who have enjoyed a tax holiday by shopping online will now be taxed on goods purchased.
Most state tax laws were passed before the advent of computers, smartphones and online stores. Because states never foresaw the creation of the Internet, online sales allow customers to dodge the sales tax imposed by states on businesses.
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Supporters of the online tax claim that online businesses have an advantage over physical retailers that are required to collect taxes for governments. The shopper can simply buy the same item online and avoid the sales tax. The brick and mortar store then misses out on the sale. That’s not fair, advocates of the online tax argue. The National Governors Association is also desperate for the estimated $23 billion in tax revenue that the online tax collection scheme would shovel into state coffers.
Proponents argue that online sales cross state lines, and they are therefore subject to the Interstate Commerce clause. That means that Congress can wave its magic Commerce Clause wand and decree that online merchants must collect the tax that would be equivalent to what a state would collect.
Congress is trying to overcome these objections by hitting businesses with the tax collection scheme only if their sales exceeded $1 million annually. The small online mom and pop operators would be exempt from collecting the online tax. Congress may also require states to simplify their sales tax collection schemes before entering the online sales tax lottery. Trying to get 50 states to agree on standardized tax sales legislation should only take about 1,000 years. It’s also possible that some sharp guy or gal might work up an app that would make figuring out 10,000 different tax schemes a snap.
Leftist cheerleaders for this tax scheme, including most Democrat governors, are calling opponents cranky, old libertarians who oppose all taxes. Those opponents, including most Republican governors, are characterizing the pro-sales tax forces as big government and big business taxers who want to stick it to the little guy.
Sales tax cheerleaders are scolding online businesses, telling them to grow up and take their tax medicine. “You are big boys now and e-commerce sales are a major part of the U.S. economy,” proponents say. E-commerce sales now make up 5 percent of the economy with $186 billion in retail sales in 2012.
The pro-sales tax forces are trying to push through the Internet measure in the U.S. Senate before the anti-tax opponents can muster their base. Senator Harry Reed, majority leader in the Senate, rushed the online tax act onto the Senate floor before hearings could be held in committee. It was only a few days ago that senators were allowed to read what was in the legislation.
Opponents quickly went on the attack, voicing concerns that online businesses would be burdened with collecting taxes for about 10,000 different local and state taxing authorities. The anti-sales tax forces complained that businesses would be strong-armed into collecting taxes for far-away governments where they had no representation.
Walmart and other giant retailers, including Amazon, are boosters of the tax because they can easily absorb the financial cost of government-decreed tax collection, while smaller businesses will be hit with another unaffordable government dictate.
Opponents also argue that this sales tax scheme is an attack on a 1992 U.S. Supreme Court decision. In Quill v North Dakota, the court ruled that remitting and collecting taxes where they had no presence was an unnecessary burden. The decision set an important legal precedence concerning cross-state taxation
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