Washington – A perfect storm is brewing that could end the days of the Internet as a relatively tax-free zone, threatening to wash away one of the last remaining redoubts of economic enterprise in the United States.
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State legislators are desperate for new tax revenue to plug massive deficits without cutting spending. And a confident Democratic Washington, D.C., now has the power to enact virtually any tax policy it wishes. Together, these two forces of nature are poised to impose sales taxes on everything you buy online.
The commerce clause of the U.S. Constitution, as interpreted by the Supreme Court in the 1992 Quill vs. North Dakota decision, prevents a state from compelling a company to collect sales taxes unless it has a physical presence in the state. For example, if you live in Indianapolis and buy a book on Seattle-based Amazon.com, Indiana cannot force the Internet book-selling giant to charge and collect its 7 percent state sales tax.
In that ruling, however, the court noted that Congress, which has the authority to regulate interstate commerce, is free to determine “the extent the states may burden interstate mail order (and online) concerns with a duty to collect use taxes.” That day is imminent.
Sen. Mike Enzi, R-Wyo., and Rep. William Delahunt, D-Mass., are expected to sponsor a bill to allow states to force out-of-state Internet sellers to collect their sales taxes.
The National Conference of State Legislatures is writing the bill. The only holdup, according to spokesman Neal Osten, is “adding some new provisions at the request of various stakeholders.”
“Stakeholders,” let’s be clear, are not American taxpayers but state legislatures wanting a new source of revenue to fill the gaps in their bloated budgets.
This bill would buffet the U.S. economy at the worst possible time. The economy contracted by more than 6 percent in the past two quarters. The last thing we need right now is more policies that suppress commerce.
The largely tax-free Internet has been a net contributor to state tax coffers by encouraging economic growth and by the collection of income taxes from those who make their living with online firms. Increase the burden on those firms, and you decrease the number of jobs. This happened in New York in 2008 when Overstock.com closed all its offices in the state in response to a new online sales tax.
Internet sales taxes also present a compliance nightmare for every online firm, from small mom-and-pop retailers to behemoths such as Amazon and Overstock. There are about 7,400 tax districts across the United States, which makes it absurdly difficult to ascertain which state gets what cut of tax revenue for a sale by an online retailer in California, made from a coffee shop in North Carolina, using a Wi-Fi connection from a company based in New York and routed through servers in Illinois, Nebraska and Texas.
Supporters of this idea – a cabal known as the Streamlined Sales Tax Project – say part of the deal will be a simplification of sales taxes from state to state. The public can be forgiven for looking at the history of tax “simplification” in America and seeing it as a scheme to force all states’ tax rates up by reducing competition among the states.
One can empathize with state legislatures dealing with budgets bleeding pools of red ink. The solution, however, is not to hammer Americans with a hurricane of new taxes but to reduce government to handle only what is really needed. The public can easily afford that without new taxes.
I can tell you this is just about the hottest topic among professionals now. It will be a real problem for business who sell over the internet to comply with the law. Lawyers and accountants will make a good living giving advise and helping in the area. And if you’re a businessman deciding to ignore it, one day you’ll get caught and have to spend lots to clean it up.
when are they going to tax us for going to the bathroom?
Since everyone is getting in line for bailouts and handouts all a retailer has to do is show how this legislation is impinging on business. Since the retailer can’t pay for the overhead to figure out which crooks, states, get what then the great white Fed will jump over hoops to save the retailer. I would get in line now.
Guys,
Russia is here!
We will be paying taxes up to our ears if we don’t show these slimy politicians that we will not pay taxes to support people who will not or work off the books.
Time for another Boston Tea Party!
Tax revolt now!
The guy in the White House has just started his term and see what his plans are….
I wonder how this law will be enforced. will the state of new york send auditors to iowa to make sure companies there are collecting ny sales tax? and what if they find a violation? what will they do? u don’t tgink ny state has the power to penalize iowa companies.
Democrats do not care!!! raising taxes just hurts the free market!!
Next they will start taxing duty free stores ?!?!? What about my south american buyers who are currently in the US ?
This frikking pisses me off!! i’m 23 years old and bh been selling online for 5 years and all the politicians are flipping clueless!!!
All the companies need to do is move operations to Canada or Mexico and they won’t have this problem. More jobs lost for U.S. citizens, the folks the people in Washington are supposed to represent.
so they think taxing the online stores will help? people shopping online do so to save the tax, they may stop shopping at these sites as well
The Demorcrats don’t care and neither do the Republicans. They will go along with it in order to bring more money back for their particular district. Thats it. BOTH parties are taxing us straight into the toilet of Communism!
Actually, they won’t be introducing a NEW tax.
Anytime someone makes a purchase from an out of state vendor (and doesn’t pay the sales tax of the vendor’s state) is legally required in many, if not all, state to submit the tax in the purchaser’s state. This is called a “use tax” (which is why the tax is actually called “sales and use tax”).
The fact that the compliance rate is near zero doesn’t make the tax requiremnent non-existant.
I think that a simple flat rate (say 5%) should apply to all internet sales to be submitted to the state of the purchaser. The frequency could be monthly, quarterly, or annually, based on the sales volume of the vendor.
This can eliminate the somewhat unfair advantage that an out of state vendor currently has.
Actually, they won’t be introducing a NEW tax.
Anytime someone makes a purchase from an out of state vendor (and doesn’t pay the sales tax of the vendor’s state) is legally required in many, if not all, state to submit the tax in the purchaser’s state. This is called a “use tax” (which is why the tax is actually called “sales and use tax”).
The fact that the compliance rate is near zero doesn’t make the tax requiremnent non-existant.
I think that a simple flat rate (say 5%) should apply to all internet sales to be submitted to the state of the purchaser. The frequency could be monthly, quarterly, or annually, based on the sales volume of the vendor.
This can eliminate the somewhat unfair advantage that an out of state vendor currently has.
I thought the federal government cannot govern trade between states ? The way it has been till now, is that you only pay sales tax to the vendor if you are in THAT state.
#19 , it’s just the opposite! The only commerce the feds can control or restrict via legislation is that which is between states. See post #17 re your second comment.
Our government is just trying to capture lost revenue. We really shouldn’t wait to act upon critical issues such as this until law, legislation, etc. negatively impacts us. Just as a great sports team doesn’t wait until it looses to improve it’s performance – and a successful business doesn’t wait until competition takes the lead in their industry before they improve their product – we shouldn’t wait for our government to start collecting taxes before we oppose the collection of tax. Technically we’re already supposed to pay a use tax on online purchases when the seller does not charge sales tax (I was made aware of this when a former employer of mine was audited by the IRS). I would hate to have our online commerce regulated by the government – or rather mandated tax collection, but at this point we’re already guilty of tax evasion. I would love to get out of paying a few bucks on my purchases, and I’m sure online businesses have enjoyed the lack of responsibility to collect taxes (like any other business is already required to do). However, the issue is not whether or not we are being taxed – but whether or not businesses are liable for the payment of “appropriate” tax to our local and federal governments. We have already given our permission to collect this tax (or taxes) on our purchases, so we can’t get fussy when they decide to take us up on our offer.