The Battle over Internet Sales Taxes

By :: March 8th, 2011

The battle over Internet sales taxes, simmering for more than a decade, is boiling over. And I think somebody bought the tea kettle on Amazon.com for $39.95. Free shipping. No sales tax. Actually, there is, but more about that later.

It is no wonder the issue is taking on a new urgency. States face a 2012 budget deficit of $125 billion and are under heavy pressure to find revenue wherever they can. In 2010, E-commerce grew by nearly 15 percent to $165 billion. And $10 billion in tax revenue is on the table. On Main Street, many retailers are getting pounded by online competition, at the cost of local jobs.   

In just the past few days, lawmakers in Colorado, Minnesota, Connecticut, and Missouri have joined California and a fistful of other states in moving to make online sellers collect sales taxes. Last month, Texas—not exactly a hotbed of aggressive taxation—presented Amazon with a bill for $269 million in uncollected sales taxes. 

Amazon is playing serious hardball in response. It sued New York back in 2008 over the issue. It shuttered a distribution center in Texas and it is threatening to cut ties with affiliate sellers who are located in states that try to collect sales taxes. The outcome of these legislative battles is uncertain.

Still, if this keeps up, I wouldn’t be surprised to see the whole issue land in the lap of Congress—which has been ducking the controversy for 20 years. That would be just the thing for anti-tax Republicans who’ll get squeezed between their governors and local retailers on one hand, and the e-tailers on the other. 

Before we head too far down this road, let’s get three things straight. First, this has nothing to do with taxing the Internet. Access to the Web is tax free, and nobody is suggesting making it otherwise (although your smart phone contract is as heavily taxed as anything in your life). 

It isn’t about raising taxes either. If you think sales taxes are too high, fine. Lobby to lower them. But it doesn’t make sense to tax a tea kettle purchased from one seller differently from the same tea kettle bought from its competitor. 

It is also not about whether on-line buyers owe tax on their Net purchases. They do. If you live in a state with a sales tax, you’ve got to pay, no matter where you buy. If the seller doesn’t collect the money, you owe what’s known as a use tax. It is right there on your income tax form. 

But, of course, almost nobody pays. And that’s where those online retailers have an unfair competitive advantage over local brick-and-mortar stores. Buyers get what looks like a 5 or 6 percent “discount” because of those uncollected sales taxes. Worse, their local competitors may end up paying higher taxes to make up for the lost revenues.   

Sales tax collections by out-of-state sellers are governed by a legal principle called “nexus.” In effect, if a business has a physical presence in a state, it is obligated to collect. The states are arguing that if Amazon and other online sellers have warehouses or even affiliated businesses in their jurisdiction, they must collect the tax. 

In 1992, the Supreme Court practically begged Congress to sort out the mess, noting both the complexity of these issues and the danger to business of conflicting rules in different states. In those days, mail-order firms (there was no E-commerce) argued it would be too complicated to keep track of the different sales tax rules and rates around the country.   

Congress responded by creating a commission.      

Technology has changed since 1992. Data miners know more about us than I want to contemplate. Keeping track of our zip code and the applicable tax rate is child’s play. Yet, the battle over Internet sales taxes drags on. For a decade, a group of  two dozen states has been trying to sort this out on its  own, with limited success. It is long past time for Congress to straighten it out.

80Comments

  1. The Battle over Internet Sales Taxes | Tax Information  ::  1:14 pm on March 8th, 2011:

    […] original here:  The Battle over Internet Sales Taxes Posted in News Tags: congress, country, internet, internet-access, issue, life, money, online, […]

  2. Michael Bindner  ::  1:18 pm on March 8th, 2011:

    This issue goes away when the system bows to the necessity of a VAT or a business revenue tax, which would largely replace state sales taxes and settle the issue once and for all. If these taxes also replace income taxes, in whole or in part, the additional issue becomes to what extent employee-donor states are reimbursed for income taxes lost as well as the nature of any federal payment to states for income tax loss from federal workers (especially in the national capital area). The tax sharing issue for online purchase is a small matter compared to that, but will likely be solved the same way.

  3. Michael Bindner  ::  1:45 pm on March 8th, 2011:

    Your new sharing button is not showing up on my Facebook page.

  4. Michael Calabrese  ::  4:45 pm on March 8th, 2011:

    Have you really explored what it takes to collect sale and/or other possible taxes form each state/region. The rule are different per state, for example whether shipping is included are not in the tax. Also it is not enough to use the ZIP code you have to use the full address, as many tax nodes go through the middle of a ZIP code area. Then who is going to get the tax, the state with the billing address, the state with the shipping address, the state where the server is located, the state where the actual merchant lives? Everyone wants their share. Remember it is not just the state but county, city, and other tax zones.

    Then the state governments do not provide easy ways to fine out if something is purchases are a given address what it is the tax. If this was provided this would make life much easier.

    So to say collecting tax is easy, you should try it and look though the law for all of the different states/regions/counties/cities. It is really a nightmare.

  5. Michael Bindner  ::  4:49 pm on March 8th, 2011:

    They have computers to figure that out by discrete address. You simply link to a GIS system.

  6. Milton Recht  ::  6:56 pm on March 8th, 2011:

    Behind every Internet sale are physical locations of the business, its headquarters, its IT department and servers, its distribution center, etc. These locations pay fees and local, State and Federal taxes based on their geographical presence and volume of business.

    Adding a sales tax on top will act like a tariff. In will increase the transaction cost and price of buying the item on the Internet, resulting in decrease sales volume and lower the tax revenue to the localities where the Internet businesses are located.

    It will cause relocation of distribution centers and because it will act as a price increase, sales volume will decline, employment will decline and tax revenue will be much less than anticipated.

  7. templeton  ::  7:58 pm on March 8th, 2011:

    “Sales tax collections by out-of-state sellers are governed by a legal principle called “nexus.” In effect, if a business has a physical presence in a state, it is obligated to collect. ” (– H. Gleckman)

    __________________

    No, it’s not a “legal principle” at all — it’s a nonsense excuse recently invented by greedy politicians to collect taxes where they have no legal jurisdiction to do so.

    It is fundamentally illegal for state/local politicians to impose any sales-tax if the point-of-sale is outside their legal jurisdiction.

    They often do so anyway, but there’s no shortage of common bank-robbers either… despite the law. State politicians would love to collect all kinds of taxes from residents of the other 49 states — but they have zero legal authority to do so and prefer to stay out of jail, but now think that the concept of interstate/internet sales taxes is confusing enough to fool most people… to permit such illicit tax impositions.

    A legal sales tax is a tax on a “sales transaction” within the geographical jurisdiction of the taxing authority. It is not a direct tax on the persons involved (Buyer/Seller); it makes no difference who the persons are or what their legal residence/nationality is — only the location of the sales transaction counts… and whether that specific type of sales-transaction is subject to a sales tax under local law.

    For internet sales, if the seller is physically located outside a given American state/municipality… then the seller is NOT under the legal jurisdiction of that government entity — and can NOT be taxed. The point-of-sale is outside the legal tax district.

    At a more precise level, the point-of-sale is where the ‘sale transaction’ is actually conducted/recorded. The point-of-sale for internet purchases is at the seller’s own computer servers — if they are physically out-of state… they are not taxable. Interstate telephone/catalog sales worked that ‘tax-exempt’ way for many decades {e.g., Sears catalog in 1910) — until politicians got greedy and ignored the “Commerce Clause” in the U.S. Constitution.

  8. The battle over Internet sales tax  ::  9:06 pm on March 8th, 2011:

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  9. The battle over Internet sales tax | TonyTags.com  ::  9:26 pm on March 8th, 2011:

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  10. American  ::  9:47 pm on March 8th, 2011:

    The gobblement’s every thought now is how to push homosexual laws and get more taxes to feed the public employee unions and anchor baby costs.

  11. Kumar  ::  8:52 am on March 9th, 2011:

    Online juggernauts like Amazon don’t collect sales taxes not because it is expensive or cumbersome to do so, but because it gives them a competitive edge and its founder and CEO said just as much. “We could have started Amazon.com anywhere,” he told Fast Company in 1996.
    http://www.fastcompany.com/magazine/05/starwave2.html
    He had also considered Silicon Valley for Amazon’s headquarters, bu saw one major problem—it’s in a big state with high taxes, meaning lots of customers would be subject to sales tax if they bought stuff from Amazon. “I even investigated whether we could set up Amazon.com on an Indian reservation near San Francisco,” Bezos told Fast Company. “This way we could have access to talent without all the tax consequences. Unfortunately, the government thought of that first.”

    Amazon does collect sales tax on sales by its marketplace merchant, Target and many others (complete list below), so evidently cost and complexity is not an issue for them to do the same for sales by itself.

    Here is a partial list of merchants selling items at Amazon.com for which it collects sales tax.
    Target.com: All states other than VT
    Harper Collins Publishers, LLC: All States
    Penguin Group (USA) Inc: All States
    Electronic Arts, Inc.: All States except for AK, ID, ME, MS, ND, NM, SD, VT, WV, and WY
    New York Times, Inc.: AL, DC, KY, and NY
    Hachette Digital, Inc.: AL, AZ, CO, CT, DC, HI, ID, IN, KY, LA, ME, MS, NC, NE, NJ, NM, SD, TN, TX, UT, VT, WA, WI and WY
    Simon & Schuster Digital Sales, Inc.: All states other than AK, DE, MT, NH, and OR
    Macmillan: AZ, CO, CT, DC, HI, IN, KY, ME, MS, NC, NE, NJ, NM, SD, TN, TX, UT, VT, WA, WI and WY
    Dow Jones & Company, Inc: AZ, CT, DC, HI, ID, KY, NC, SD, and TX
    Zondervan Corporation LLC: CA, CO, FL, GA, IA, IL, IN, LA, MA, MD, MI, MO, NC, NV, OH, PA, SC, TX and WA

  12. Kumar  ::  9:21 am on March 9th, 2011:

    Sales Tax is a consumption tax – a tax on the consumers. The retailer is made responsible for collecting it as it is more convenient to enforce the law, than the authorities collecting it from the consumer. The very same tax is alternatively called the USE TAX that a consumer owes when the tax had not been collected by the seller as in the case of purchases from out-of-state online merchants.

    That “legal principle” still stands. The 1992 Quill vs. N.Dakota Supreme Court decision hinged on the burden of a “welter of complicated obligations” to exempt merchants from the obligation of collecting sales tax from out-of-state customers. And because commerce clause restricted the long arm of a state to regulate commerce to only within its borders, the court declared it cannot compel out-of-state merchants to collect sales tax on sales to its residents. The sales tax is still due. Only now the states were rendered impotent in being able to collect it from the consumers in their state.

    One can argue about the merits of a regressive tax like sales tax/ consumption tax as a means of raising revenues, and that is a separate debate. As long as this system of taxation stands, it should be fairly and uniformly applied without unfairly favoring the net-savvy consumer who are the ones who disproportionately benefit and treating the out-of-state online merchants as a favored class of merchants exempted from the task of collecting the consumption tax like their fellow in-state competitors.

  13. Kumar  ::  9:25 am on March 9th, 2011:

    The 1992 Quill vs. N.Dakota Supreme Court decision hinged on the burden of a “welter of complicated obligations” to exempt merchants from the obligation of collecting sales tax from out-of-state customers. To overcome this, in the last congress, Congressman William Delahunt (now retired) with bi-partisan co-sponsors had introduced what was called the “Sales Tax Fairness and Simplification Act” H.R. 3396 to create a uniform set of sales tax guidelines called the “The Streamlined Sales Tax Agreement” among the states which however died in committee.

    “The Supreme Court left us a roadmap in that 1992 decision,” said Neal Osten, director of the National Conference of State Legislatures’s Washington office. He said 24 states have signed onto the uniform sales-tax compact anticipating the change, but many larger states, such as Illinois, appear to be waiting for Congress to give its OK before revamping their often complicated sales-tax systems.

    The Streamlined Sales Tax Agreement makes it possible for even small merchants to comply easily and for FREE. The Federal Tax Authority, a private company also known as TaxCloud.net, launched last year its TaxCloud software-as-a-service application that it plans to offer SST-participating merchants for NO CHARGE.

    “A merchant using TaxCloud doesn’t have to know anything about sales taxes other than where it’s shipping from, where the customer’s destination is, and the class of goods the customer is buying,” says R. David Campbell, co-founder and CEO of TaxCloud.net. He says most retailers can sign up for TaxCloud and begin using it in 20 minutes.

  14. Kumar  ::  9:28 am on March 9th, 2011:

    I am not very sanguine that the States will prevail in this battle of wits and nerves. Amazon will use its familiar playbook of intimidation by threats of job losses and also use the courts to tie up this matter exploiting our byzantine sales tax regulations and loopholes on “Nexus” and “Entity Isolation” to cynically dodge collecting sales tax.

    The proper venue where this should be addressed is Washington by resurrecting the “Sales Tax Fairness and Simplification Act,” which had bi-partisan sponsors but got nowhere in the last congress and its principal sponsor is now retired. But this federal legislation gives the force of law only to states which enacted the “Streamlined Sales Tax Agreement” which 24 states have so far passed. So, state legislators should focus on this step first.

    This will restore a level playing field to brick and mortar retail and bring back jobs and vibrancy to mainstreet retail. Plugging such corrupting loopholes will foster a business ecosystem of free, fair and level playing field to flourish, bring back jobs and vibrancy to main street retail and much needed revenues to the state.

    An outfit called Alliance for Main Street Fairness (StandWithMainStreet.com) has been formed recently to lobby to end the present online sales tax loophole.

    Big box retail and their commercial real-estate landlords must regard the present competitive handicap from online competitors as an existential threat and crank up their lobbying efforts.

    This column in Slate illuminates this subject.
    “Every Day’s a Tax Holiday: How Amazon.com undersells Best Buy, the Apple store, and almost everybody else.”
    http://www.slate.com/id/2275552/

  15. Ralph H  ::  10:06 am on March 9th, 2011:

    As one who happily evades sales tax by shopping at Amazon, I still recognize that it would be in the best interest of our local communities to even the playing field somewhat. There is real value to the community to have a brick and mortar store that employs real people who pay taxes, and who pay real estate and corporate taxes. Perhaps a federal tax collected on all “untaxed” internet sales. the collected pool could be distributed to the states on a % of sales basis. Bookeeping would be pretty simple, and the tax could be low.

  16. Roy  ::  11:17 pm on March 9th, 2011:

    I will shop on craigslist.org if they tax the internet. Government should collect the money for services, not to boost the unions and public employees pension plans.

  17. Around The Dial – March 10  ::  3:02 pm on March 10th, 2011:

    […] TaxVox revisits “the battle over Internet sales taxes.“ […]

  18. AW1 Tim  ::  8:09 pm on March 10th, 2011:

    Here’s a better solution: States could stop expanding their budgets and instead start cutting them. Unlike real people, states seem to write a budget by deciding how much they want to spend and then shaking down the citizens for the cash. Real people have to keep their spending commensurate with what they have to hand. States (and the Federal Government) are acting like the idiot who has a checking account, and thinks he still has money available to spend because he still has checks in his check book.

    Keep internet sales tax free. It helps to boost the economy by growing business, and doesn’t stifle it in the manner that taxation does, especially onerous taxation such as we currently endure.

  19. stargirl  ::  9:32 pm on March 10th, 2011:

    yes, brick and mortar stores pay taxes, but they get police and fire protection, street cleaning, street lights, and many other benefits.
    taxing internet retailers is not “leveling the playing field”—it is pure confiscation from businesses that get nothing back for it.

  20. Love Internet  ::  9:33 pm on March 10th, 2011:

    Okay, do this (tax internet) and all the internet providers will then move their organizations overseas and sell from there. NOT SMART business to tax internet.

    Cash strapped states should lower all business taxes, state taxes, etc… to invigorate their states. Furthermore, they should INVITE businesses to come to their states by making the business climate SUPER FRIENDLY in all aspects to lure them back or to the state.

    This does what? Generate revenue. Create Jobs. State coffers get filled. Citizens happy.

  21. garth  ::  9:44 pm on March 10th, 2011:

    in all the comments not one has address the larger issue. the issue is not about sales tax it is about control over the consumer. Can anyone really answer this . of all the taxes collected were does the money really go. the only reason for a sales tax is for a decitaded revenue stream to fund a portion a goverment that only a fraction of the populas might use or are elligable to use. thier is no perfect tax system and as long a you tax without transparancy people are going to find away to evade it.

  22. The MaD HaCkER  ::  9:48 pm on March 10th, 2011:

    If you want to kill amazon and other company’s who do business online this is the way to do it. People do business online because,
    1. More selection.
    2. Cheaper.

    If you make it harder for people to spend there money they will simply spend it in a way that is easier.

    They passed a tax on million dollar boats figuring that they would get the money out of the millionaires. Millionaires stopped buying, (Who NEEDS a million dollar boat?) And killed the boat building industry. So go ahead and tax all you want, Millionaires are smarter than politicians.

    Or “If your so smart, Why ain’t you Rich?”

  23. Matt  ::  11:29 pm on March 10th, 2011:

    The difficulty isn’t in calculating and enforcing taxes for each municipality and applying those to Amazon. The problem is once you do that, then you must also require every small website across the internet to comply. The amount of legislation that would go into an action like that would be phenomenal. Every Amazon, and every ma and pa website will be ordered to comply. If they do not, what do you do? Shut them down? In my opinion, this would effectively eliminate a great deal of creativity, ingenuity, and American competitiveness on the web effective immediately when the tax penalties are enforceable.

  24. Dogtor Obvious  ::  11:35 pm on March 10th, 2011:

    “online retailers have an unfair competitive advantage over local brick-and-mortar stores” – No they don’t. Online purchasers have to pay shipping costs and incur the inconvenience of longer delivery lead times. There are costs associated with every transaction, its just that these costs take different forms (time or money).

    “Local competitors may end up paying higher taxes to make up for the lost revenues” – Where are the facts to back up this unsupported claim? This is a ridiculous assertion.

    “Keeping track of our zip code and the applicable tax rate is child’s play” – Oh, really? With the thousands of zip codes and constantly changing tax rates? This writer is out of touch with reality.

  25. Concerned Citizen  ::  11:35 pm on March 10th, 2011:

    Sure, you can have a computer calculate the applicable tax rates for the 50 states, the 3200 counties and tens of thousands of different cities. Then you have to REMIT the taxes to each of these various jurisdictions. What a nightmare. Just shut it down and collect food stamps, it’s going to be easier for the small internet businesses.

    You’ve obviously never run a retail business before!

  26. Sarah B  ::  11:47 pm on March 10th, 2011:

    Howard Gleckman sure seems eager to promote the case for taxing internet sales. It’s easy! He says. It’s fair! He says. The localities sure could use the money! He says. Nice cheerleader imitation.

    Why should online retailers pay local sales taxes, when they get nothing and require none of the support or government services that brick and mortar stores need? The fact that they CAN be taxed does NOT mean that they SHOULD. The fact that local governments need more money does not mean they SHOULD have it, after all, there has never been an instance in history of a government that had ENOUGH MONEY. If you doubt that, go ask your local NEA office how much money is enough money for local public schools.

    Keep the internet tax free. It’s one of the few things that is actually lowering costs for people in these difficult times. We do NOT need higher taxes and higher prices, Howard.

  27. Chriscas  ::  12:29 am on March 11th, 2011:

    Yep! Let’s straighten it out, that’s right! Uh huh. Mr. Gleckman is just one of too many depressingly many people among the journalists and assorted chatterati who are basically clueless about what it takes to start up and run a business. I have a web site that gets about 2000-3000 hits a day. (It’s taken about 5 years to gt to that number, Not complaining, I’m just mentioning this.) About 40 of those folks visit my web store every day. And I get about 10-15 orders a month out of all that. Do you have any idea Mr G. how hard it is to make money out there these days??? How many wallets are gong to close even further for mom and pop shops and web stores like mine if the answer to everything is only tax, tax, tax! (Oh, and print print print money if you’re Ben Bernanke. Hello $10 for a loaf of bread before too long!) As Warner Wolf would say “Give me a Break!”

  28. R Strebor  ::  1:08 am on March 11th, 2011:

    Name one tax that once instituted was later rescinded, or stayed at the “low” teaser rate it was introduced at. I can’t think of one either. All government, (city state and federal) have to get by with less just like the rest of us. Let’s all start thinking differently. If it isn’t necessary don’t fund it. If it is necessary just be efficient about it. But most importantly stop thinking of my wallet as yours.

  29. Jim S  ::  1:35 am on March 11th, 2011:

    I am astounded at the avaricious politicians of these states. What services are the wannabe tax collectors providing in return for all the collecting, remitting, and reporting they expect from online retailers? None, as far as I can tell. I’m betting the next move for Amazon will be to relocate its HQ and operations offshore, taking all the distribution center jobs with it. Consumers will still be able to buy online, and states will still be fuming about how unfair life is.

  30. schmuck281  ::  2:14 am on March 11th, 2011:

    I would like to point out that Oregon has no Sales Tax. Amazon is already hosted on servers near Bonneville Dam in The Dales, OR.

    Should any on-line merchants want to relocate their shipping center/operations this would be the place.

    But be warned. The Democrats control the State and will probably find a way to shake you down.

  31. Jeff  ::  3:31 am on March 11th, 2011:

    Just for the record, I don’t “owe” any sales or other tax. Rather, the government coerces me to pay these fees, sometimes for legitimate purposes as outlined in the Constitution, but all too often for purposes that fail the common-sense test for the proper functions of government. Their coercion amounts to nothing less than a threat of force; if I fail to pay their extortion, they will deprive me of my freedom. Downtown in main street, that would be gangsterism and a crime. When you get yourself elected to office, apparently its a license to steal.

  32. Quersty  ::  3:33 am on March 11th, 2011:

    Last time I checked the dictionary “nexus” means “connection”. Since when is a connection equivalent to having a presence? This isn’t about collecting revenue or leveling the playing field. Amazon’s competitors know full well that Amazon will cut its ties with affiliates and no revenue will be collected. It’s about bricks and mortar stores trying to cut out a more efficient competitor – like a tariff in trade – by claiming that a web site that links to Amazon is the same thing as if Amazon had an actual distribution center in that state.

  33. Mike  ::  4:13 am on March 11th, 2011:

    I can sympathize with your above statements. I have a small business and between the government induced inflation along with every activity and purchase I am involved in costing me roughly 20% to 30% more every time I turn around, it makes a guy wonder why even bother? I have raised my prices to the hilt, any more I will lose customers. I sell prepared food, right now my quality is what sustains me and allows me to charge a bit more. I cannot blame Amazon or any other business for balking at these new tax laws. We do not work for the government, and I have yet to receive payment from the gov. for my time working as their agent to collect their taxes.

  34. DennisinWV  ::  6:48 am on March 11th, 2011:

    It is about your money. Why do people shop on the internet? To save their money. It is always about your money.

    Which brings us to politicians. They are concerned about your money, too. Politicians want to tax the dickens out of your efforts. Along the way they want to tax everything you can buy with what is left after they tax your efforts.

    And, should you earn more than you spend the politicians want 50% of what you got left after you meet your maker.

    Believe me. It is always about your money.

  35. fran  ::  7:25 am on March 11th, 2011:

    That depends on how you look at it. The person which is doing the purchacing is the one who pays the tax. They send their children to local schools which recieve state money, are protected by the state police etc. Actually I don’t see why making on line retailers or sellers responsible to collect is the best way. There are fees to have the privelage of collecting the tax and fines if errors are made in my state.

  36. fran  ::  7:30 am on March 11th, 2011:

    I like your idea.
    A number of folks think the business about 1099 forms put in the affordable health care obamacare mis named bill think it was to head toward value added tax insertion in the near future if election results enable such.

  37. John  ::  7:37 am on March 11th, 2011:

    What about the disadvantage that online retailers have, the cost of shipping. The reason I like to shop online is the wider number of choices and prices. The states need to get their financial houses in order by proper management and less government, not by seeing how much more money they can legally steal.

  38. fran  ::  7:55 am on March 11th, 2011:

    What about an exemption for a church, for re sale, for an agricultural producer? An agricultural exemption has to be proved evry year in my understanding. Tax cloud it going to keep up on that? Or is the accountant at year end expected to fill out stuff for reimbursement?

  39. Dave in Ohio  ::  8:11 am on March 11th, 2011:

    States need to leave things alone. Internet commerce is booming, involving all kinds of jobs. How many people are involved when you buy a product online? IT people and staff, shippers, manufacturers – and they all pay taxes!
    It is super convenient to shop online. My price comparisons show cost of item + shipping = cost of item + tax.
    If you want less of something tax it! If you want more of something keep the government out of it!

  40. corbett  ::  9:04 am on March 11th, 2011:

    [ fran says: ” The person which is doing the purchasing is the one who pays the tax. ” ]

    ___________

    No. The ‘seller’ actually pays the sales-tax in most cases.

    Thus, it is fundamentally unjust to tax an out-of-state merchant … because that merchant receives no benefit from the tax collected — and cannot vote on the policies/politicians that tax him {..’taxation without representation’}.

    If non-taxed internet sellers could so easily have charged their buyers another 6-8% in product pricing (sales-tax equivalent price increase) — they would already have done so to maximize their seller profits. That would be a lot of easy/no-cost profit — they would be fools not to have already raised prices to what customers were willing to pay. That’s how markets work… supply & demand trend toward a market price equilibrium. Market prices are determined only by ‘Supply & Demand’. That’s basic Economics 101 everywhere.

    Government imposed sales taxes do not directly change the market supply/demand curve for particular products. Therefore, any sales tax levy can only be taken from the seller — because buyers overall will not pay more than market prices. It reduces seller profits/sales-volume and increases seller costs. Sales taxes are ultimately an income tax on sellers (…and sellers are also forced to be unpaid tax-collectors for the government).

    Sales taxes are not shifted forward to buyers. If that were true, those buyers could just shift the extra sales tax cost to the “buyers” of their labor (employers) thru higher wage demands; it would be an endless circle of shifting, where nobody ever really paid the sales tax (??)

    America grew & prospered without any sales taxes at all … until the 1920’s, when greedy politicians invented yet another way to extort money from the citizenry. Sales taxes should be abolished– not expanded.

  41. SLY  ::  9:04 am on March 11th, 2011:

    Its called greed. Screw the states. Try spending less money

  42. John George  ::  9:29 am on March 11th, 2011:

    The author has obviously never owned a business. Use taxes are not simple as “zip code” and pay the state. There are state and local taxes, including school and other special taxing districts in Texas. And it is up to the business to figure out where and what jurisdictions get paid when mail order is involved.

    It is a bit easier for brick and mortar store fronts, because they can figure it out just for their location at POS-point of sale and thru business licensing at state and municipal levels, but even that is a lot of work.

    For mail/internet oreders, if the states and localities really want these taxes, they need to create a state database by zip code with all columns showing entities and %’s for use taxes due by buyer zip residency – and make it downloadable and free to online businesses. Of course, it will be a mess and require an army of state workers to figure it out – probably costing more than the incremental gain – that’s government efficiency for us all! You won’t see this anytime soon, because it is very complex and even state level IT shops would have a hard time getting it right.

    So many laws get passed, with desired consequences, but not much effort is given to help those with the burden of compliance – thus raising costs again to the end consumers!

    Written by a former business owner (got swept away in the great recession…)

    cheers,
    John G.
    Houston, Texas

  43. Time for a witch hunt  ::  10:11 am on March 11th, 2011:

    Democrats = Unionists, Communists, Perverts and Islamists.

    We need to have a good, old-fashioned, pitchforks-in-hand witch hunt.
    Drive these swine over the edge of a cliff.

  44. fran  ::  10:42 am on March 11th, 2011:

    Well let’s put it this way, we run a dog boarding business which currently counts as agricultural and is inspected by an employee in the state agriculture dept. It is curently not something which is subject to sales tax. If and when the legislature and governor pass a change in that the folks who board the dog will get added to their bill a sales tax. Like the article says one is supposed to pay essentially the sales tax on the state income tax form (the stuff this article is about) but I just dropped off my stuff at the accountant and didn’t realize I forgot to keep track all year long until this article.

  45. Goodmongo  ::  11:06 am on March 11th, 2011:

    Clearly the writer doesn’t know much about sales taxes. This argument has gone on way before the internet. You live near the border of two states that have different sales tax rates. Guess what they don’t ask what state you live in. Or you live in a high tax city like Chicago but shop in the burbs with a much lower sales tax. Again no biggie. Its the same thing with the internet. If the store wants more business get the lcoal government to lower the tax rate to drive up sales.

  46. betsp  ::  11:18 am on March 11th, 2011:

    It’s not a problem of too little cash for states. It’s a problem of too much spending. Cities and states grab onto big brother government’s offer of matching funds….bam! No money now for their half. Newsflash…the feds don’t have any money either. They both want to now find more taxes, instead of dumping the self-indulgent money sucking programs they love so much. Stop spending, cut budgets across the board 20-25%. Politicians think we’re so dumb.

  47. stargirl  ::  12:12 pm on March 11th, 2011:

    thats a good point, thanks!

  48. robert miers  ::  12:12 pm on March 11th, 2011:

    shipping cancels out sales tax. tax and ship charges will put both internet and public and private shipping companies out of business and force sales back into the empty big box store owners who are less than nice folks

  49. freedomliberty13  ::  12:15 pm on March 11th, 2011:

    CHICAGO, March 10, 2011 /PRNewswire/ — Illinois Gov. Pat Quinn today signed the so-called Internet tax bill (HB 3659), which requires out-of-state merchants who advertise on websites based in Illinois to collect taxes from all Illinois customers.

    The new tax law relates to out-of-state merchants like Amazon.com and Overstock.com that do not have a physical presence in Illinois but have relationships with Illinois advertisers and publishers like CouponCabin.com. Under the provisions of the new law, these merchants are deemed to have a presence (nexus) in Illinois and are therefore required to collect Illinois sales tax.

    In response to the Governor’s approval of HB 3659, Scott Kluth, CEO of CouponCabin.com, issued the following statement:

    “The Governor’s approval of HB 3659 is deeply disappointing. As a result, Illinois will lose jobs, many thriving businesses like CouponCabin and other affiliate marketing firms will be forced to move to other states, and most important, this law will not generate the tax revenue Illinois thinks it will collect.

    “Those of us who opposed HB 3659 made every effort to persuade the Governor that it is a misguided attempt to bring ‘fairness’ and new revenue to Illinois by requiring out-of-state merchants who advertise on websites operated in Illinois to collect sales taxes from Illinois customers.

    “The reality is that just like other states that approved similar legislation, Illinois will not collect additional tax revenue. Instead, the merchants who would be affected by this law will simply sever their contracts with Illinois affiliate advertisers, as they have done in every other state. The only result of this law is that high-growth businesses like CouponCabin will be driven out of Illinois to maintain their relationships with out-of-state merchants.

    “We support efforts to find a solution in Illinois that could correct the damage HB 3659 will cause. We will also continue to work within our industry toward a national solution to these tax issues that would enable our businesses to continue to grow and create more jobs, no matter where they are located.

    “In the meantime, CouponCabin is actively exploring moving to Indiana. It’s a shame we have to consider leaving our longtime home in Illinois, but we will do what is best for our business.”

  50. A. Adams  ::  12:24 pm on March 11th, 2011:

    To the Illinois affilates: LEAVE ILLINOIS!! Move to the sunny South. Alabama is ALWAYS open for business. No creedy Union bosses, hard working motivated employees and little or no taxes. Just like its football team, Alabama business will keep righing on ROLLING! Give us call “y’all” ;0)

  51. Ron  ::  12:32 pm on March 11th, 2011:

    It’s really simple. People can’t afford these sales taxes especially in this economy. I’m disabled and do most of my shopping online and go out of my way to make sure I purchase from those e-stores such as Amazon that do NOT collect sales tax. Last year I was looking for a new computer. Went through and was all set to buy a 2200.00+ computer until I got to the checkout. HP collects sales tax. I called them and they were rude about it and said yes I had to pay. I won’t repeat exactly what I told them but it was anatomically impossible. Went to another online place that I could build a much better computer myself online and ended up paying 2500.00 but with no tax.
    Unless there is no way around it I won’t but anywhere online that does me out of money in the form of sales taxes.

    These fools in Illinois think it’s going to help them? They’re idiots, all its going to do is force the affiliates to either shut their doors entirely or move to another state. Amazon and others like them will still be doing business in these states and still not collecting sales tax, thank God.

    I do a lot of purchases with Amazon and I hope they never succumb to these SOB’s trying to shove the collection of sales taxes down their throat.

    Long live internet freedom and that includes freedom from taxation.

  52. phil  ::  12:53 pm on March 11th, 2011:

    It is now possible to buy products directly from internet retailers in China. I’ve done it. Just try collecting sales taxes from them. If you start forcing US internet retailers to charge sales tax, guess what’s going to happen.

  53. Mike  ::  1:06 pm on March 11th, 2011:

    Actually, it’s clear that you don’t know a lot about sales taxes, either, if you think that any of the scenarios you present (paying the legally imposed tax based on where someone takes possession of the item) have anything to do with the avoidance of paying sales/use tax for online purchases.

    Whether you like it or not, if you live in a state that imposes a sales tax, you (and any person who purchases online) have a use tax liability if that retailer doesn’t collect the sales tax.

  54. A Wenger  ::  1:54 pm on March 11th, 2011:

    Frankly, everyone always pays shipping….If you don’t pay it as an add-on, then you pay it as part of the price of the item. The break you get with sales taxes helps offset the cost of shipping. Gov’t hasn’t yet seen a ‘revenue source’ (i.e. tax) that it wouldn’t like to collect. I know it’s not entirely relevant to the internet tax discussion, but my own My state just, a few years ago, raised MVA Tag and titling fees, sales taxes, the state portion of Property Taxes and various ‘sin’ taxes (cigarettes, alcohol, etc), plus a ‘millionaires tax’ (that caused some Millionaires to move out of the state!!! Yeppers, hey LOST over 100 Million instead of raising 200 Million!). They now want to raise gas taxes (YES!! In this environment!!!) so they can ‘build up the depleted ‘Transportation Trust Fund’. After all, who want to deal with potholes and other lack of maintenance on the roads. Well, that was supposed to be part of the purpose of raising MVA Tag and Titling fees. The so-called trust fund was raided of some 700,000,000 the past couple years to ‘balance the budget’. There would’a been plenty of money in this ‘Trust Fund’ if we could’a TRUSTED (pun intended!!!) the politicians to leave it alone!

  55. Jonathan Hilton  ::  2:00 pm on March 11th, 2011:

    An OVERREACHING Government who has taken on and funded programs it never should have gotten involved with>> NOW EXISTS ONLY TO FIND NEW REVINUE STREAMS<< TO SUPPORT ITS UN NEEDED PROGRAMS !!! MAKE THEM STOP THE MADNESS AND CUT PROGRAMS !!!!!!!!!!!!!!!!!!

  56. Jon  ::  2:15 pm on March 11th, 2011:

    Seems like a good angle to institute a VAT tax. (which I’m against)

    The companies, that will be affected by this aren’t stupid, the internet is an world wide vehicle. The companies have the ability to move their head quarters overseas, set up distribution center outside of the US, say south of the border (which I’m sure the politicians in Mexico would love) and use very efficient mail services like FedEx and UPS to get their product in.

    Regarding Michael Bindner comment – “which would largely replace state sales taxes and settle the issue once and for all. If these taxes also replace income taxes”

    Sorry my friend, those sales taxes and income tax will stay in place. I’m not aware of any tax of that nature that has been repealed.

  57. Dave  ::  3:21 pm on March 11th, 2011:

    I wonder if it occurs to state legislators that with the emergence of big box retailing and malls, one must use heavily taxed fuel to drive or be driven miles to a big box/mall to pay more sales taxes?

  58. Dave  ::  3:25 pm on March 11th, 2011:

    I wonder if state legislators consider that in this day of big box malls one must drive or be driven miles with heavily taxed fuel to pay more sales taxes?

  59. Iceman83  ::  4:32 pm on March 11th, 2011:

    Am I ever shocked! Its “Nexus?” All this time I thought it was supposed to be honesty or integrity or accountability. If all the states are cash strapped than simply reverse the build up of new hires and new programs that lead up to this cashstrappness until the books are balanced. I don’t call it Nexus…..I call it gutnexusless!!

  60. Glenn  ::  4:12 pm on March 12th, 2011:

    I live in NYC and started online shopping due to the extremely rude store personnel here, it is outrageous. I don’t care if they tax it or not, but I am sure I am not the only one who would prefer the instant availability of a brick and mortar store, but ate the hassle of the crowds and the ignorant/apathetic staff.

  61. Don  ::  1:09 pm on March 13th, 2011:

    “States face a 2012 budget deficit of $125 billion and are under heavy pressure to find revenue wherever they can.”

    Here’s a thought. CUT SPENDING !

  62. SwissArmyBud  ::  1:17 pm on March 13th, 2011:

    “Went through and was all set to buy a 2200.00+ computer until I got to the checkout… Went to another online place that I could build a much better computer myself online and ended up paying 2500.00 but with no tax.”

    A 10% tax on 2200 is 220, the combination being $2,420… a savings of $80. At the highest rate in existence. I’m sure you pay less than that, therefore you would have paid even less for the computer.

    I swear, our country is inhabited by the worst kind of reactionary, knee-jerk, pretend capitalists.

  63. walt  ::  9:11 pm on March 13th, 2011:

    You’re aware that every state balances its budget each year, right? You’re aware that no state has expanded its budget since the Great Recession was induced by under-regulated, cheating investment bankers, right?

    Oh, and you’re aware that “real people” have been running up a ridiculous amount of personal debt, on average, for years, right? It’s not about checking accounts. It’s about credit cards. Real people have maxed out credit cards, student loans, bloated mortgages. That’s because government hasn’t bothered the regulate predatory lending, and real people are more than happy, on average, to spend money they don’t have.

    And then the complain about the taxes! Nobody with a oversize home with a home theater system tuned to Fox, and a couple of 12 mpg SUVs parked in the garage – all bought on credit – should complain about taxes. On the other hand, if you really want to earn the money you spend, you should be happy that the government’s ready to help you out with education, transportation infrastructure, and a legal foundation to enable business to thrive. All that costs the government real money. Taxes are how it’s done.

  64. Unkljimi  ::  10:17 pm on March 13th, 2011:

    The argument that esellers have the advantage of a “discount” equal to the sales tax is frivolous. Esellers charge shipping, or if they advertise free shipping it is built into the price. I for one buy online because:
    1. I save time and gas by not chasing all over the city to find and buy what I want;
    2. The prices – without regard to sales tax – usually are lower;
    3. On line merchants know what they have, or where to get it, and don’t have to allocate sales between a stores; and
    4. Whether the brick and mortar clerks are rude or polite, paying for a purchase and escaping the store remain the most difficult part of shopping while on line one does not have to wait for anyone.

  65. Dave S  ::  12:00 am on March 14th, 2011:

    Actually, the author wrote a pretty well balanced article. The level of government spending is a separate issue. Unfortunately, most missed the point. The tax is on the books. The issue has been enforcement and tax avoidance. Congress needs to act to restore a more equitable sharing of the tax burden. Amazon is being short-sighted in wasting resources to defeat this issue.

  66. This Week in Small Business: Start-Ups Surge | Freelance and Blogger Jobs World  ::  8:51 am on March 14th, 2011:

    […] advantage over local retailers. The Tax Policy Center’s Howard Gleckman says that the battle over Internet sales taxes, simmering for more than a decade, is boiling […]

  67. lasvegastaxaccountant  ::  11:59 am on March 23rd, 2011:

    Because of our soaring budget deficits, it is pretty certain that governments will look for new ways to collect taxes. It’s more of a matter of when than a matter of if there will be a tax on internet sales.

    On the other hand, retailers on the internet have a big disadvantage in that people have to wait for an item to be shipped. The fact that consumers cannot feel, touch, and ‘try on’ the item they’re buying is a dealbreaker in many cases. This balances out the tax advantage. I think its also important to realize that bricks and mortar retailers are still a much bigger segment of retail than online merchants.

  68. delusioned  ::  2:32 pm on June 20th, 2011:

    Did you miss the part where he actually got a better computer?? I guess you have never shopped for a PC on sites such as Dell, HP, Gateway etc. If you want the best bang for your buck you either buy the components and build it yourself, or go to a custom PC site and build your rig to easily be more powerful then the same top of the line pc offered by other big names at a fraction of the cost.

    in essence your reading comprehension and knowledge of the subject matter is abysmal.

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  70. Amazon vs. sales tax | World Info Hub where the world gets its news  ::  5:28 pm on September 3rd, 2011:

    […] to repeal the law through the ballot box. This isn’t a new fight. We blogged about it last March, when states started proposing laws to collect internet sales tax, and back in 2009, when New York […]

  71. Amazon vs. sales tax | Tax News  ::  3:15 am on September 4th, 2011:

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  72. Amazon vs. sales tax | Kindle Sale 101  ::  7:10 am on September 28th, 2011:

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  73. self defense products  ::  8:26 pm on September 30th, 2011:

    I own an e-commerce store and I think the whole concept of an internet sales tax is ridiculous. Brick and mortar businesses say its needed to “even the playing field”. In reality the playing field is already even, with the addition of a sales tax it tilts to the brick and mortar stores favor. The reason…shipping costs. The money that on line shoppers save in sales taxes, they end up spending on shipping. Now they have to pay both online sales tax and shipping cost. This is a clear advantage for brick and mortar stores. I’m glad most shoppers don’t know about internet taxes or refuse to pay them, however I worry that at some point the Gov. may try to force e-commerce stores to collect it for them.

  74. A Fix On The Horizon For The Online Sales Tax Mess | My Blog  ::  1:13 pm on November 17th, 2011:

    […] as Best Buy, local Main Street retailers, and state tax collectors. Amazon, which has aggressively resisted the efforts of several states—most recently California— to make it collect sales taxes, says it […]

  75. Stephen  ::  5:20 pm on March 5th, 2013:

    You are oversimplifying the issue. Sure some program could keep track of it, but who wants to bear the responsibility of keeping it up to date? Do you think store owners should have to keep track of 50 state rates plus uncounted local rates? Not only that, but most states require a permit. Should e-commerce stores need 50 sales tax permits?

  76. Jack Gallagher  ::  9:15 pm on January 22nd, 2014:

    Most comments, and the author, miss the Constitutional question. The Supreme Court has ruled that a duty to collect and remit is in fact a tax imposed on the retailer, not the purchaser. This is obvious though not discussed – and that is because when a retailer fails to remit the local government can pursue the retailer for penalties and interest, not the purchaser. So, when a state or municipal government imposes a tax on a retailer with no physical presence, such retailer is taxed by a government in which there is no legislative representation of the retailer or its personnel. You may recall that this country was started over a similar dispute and other intolerable grievances. The city of Scottsdale, AZ in which I work would be tickled pink to be able to require LL Bean to collect the 1.65% sales tax on every resident who purchases something from Maine – a situation where LL Bean’s only connection to Scottsdale is a mail order catalog and a website housed in Maine – and damn the owners and employees of that business if they don’t like it. They can go pound sand because they are powerless to influence the city council – they cannot vote in the city’s elections for mayor or councilmen. As for my opinion, such a situation is a tariff on goods crossing state lines and ought to be barred by the Commerce clause. The technology point made by the author is a red herring. If technology is so advanced then let the states and cities mine the data of their citizens’ purchases and try imposing the duty to remit upon them. Illinois already has an illegal method of doing this on their state income tax forms.

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  79. Can the House compromise on a $1.1 trillion spending bill? | The Today Online  ::  5:29 am on December 10th, 2014:

    […] customers who spend more than $500-a-year that they owe state sales tax on their purchasers. Fair? Online companies don’t think so: They’ve been challenging the law since […]

  80. Tax Policy Center | The Daily Deduction  ::  2:42 pm on December 10th, 2014:

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