Get Ready for Internet Sales Taxes

Are sales taxes finally coming to the Internet?

Taxes on the InternetAfter years of fruitless attempts, it would seem so.

On July 15th, five senators introduced legislation on a bipartisan basis to make taxation of purchases made over the Internet a reality.

The legislation is called the Marketplace and Internet Tax Freedom Act, and it combines the efforts of two initiatives that had been separate before:  The Marketplace Fairness Act and the Internet Tax Freedom Act.

On the one hand, the legislation would keep access to the Internet tax-free by limiting what state and local governments can do to impose Internet access fees – at least for the coming decade.

On the other hand, it gives states the unambiguous ability to enforce their sales tax laws on businesses selling to buyers located within their borders – including if those purchases are made online.

In other words, the 44 states that currently have sales tax laws on their books will be able to collect online sales taxes.

Not surprisingly, the National Retail Federation and other trade groups that represent brick-and-mortar retailing are lauding the actions of the five senators in introducing the legislation.

David French, the NRF’s senior vice president for government relations, noted that it’s high time “for Congress to eliminate the sales tax disparity, which disproportionally impacts community and independent retailers.”

Unlike in prior years when Senate and House lawmakers seemed incapable of coming together in support of sales tax legislation, this time appears different.


I think part of the reason is the sense that, at the end of the day, it just isn’t fair for offline retailers to shoulder the burden of collecting taxes – along with being at a competitive disadvantage – versus online retailers who benefit from being able to offer lower the same products at a lower overall cost, while also benefiting from lower overhead costs in most cases.

The fact that the current legislative bill is being introduced by senators from across the political spectrum as well as a diverse geography (the Northeast, South and Midwest) — tells me that the legislation will go through — and that the days of tax-free online shopping are numbered.

It will be interesting to see what the ramifications might be if and when the legislation passes.  Will 24/7 armchair convenience trump the sudden 5%-7% higher cost to online consumers?

Those consumers can be notoriously price-sensitive … but they’re also creatures of habit and great lovers of convenience.

My prediction is that the new regulations will turn out to have little or no impact on the broader retail buying behaviors.  If you concur — or if you have a different opinion — please share your thoughts with other readers here.

2 thoughts on “Get Ready for Internet Sales Taxes

  1. Do you really think this is about “evening the playing field”?

    Ha! It’s nothing more than yet another revenue grab by the government.

  2. Well, the math is a bit more complicated for small retailers. There is the matter of the sales-tax price hike, but there is also the more complex matter of compliance.

    I forget how many sales tax jurisdictions there are in the U.S.— hundreds if not thousands. Many counties and municipalities also impose their own sales taxes. There is no question that companies like Amazon could quickly if not easily comply; they have the technology and back-office resources at-the-ready. But a small retailer of, say, classical music CDs with customers scattered around the country would face a nightmare trying to manage all the compliance paperwork.

    I’m sure there will be software packages available that, when bolted onto an e-commerce site, will instantly make the appropriate calculations — at some ongoing cost of course (tax rates need to be constantly updated). But unless local departments of revenue have all upgraded their operations in the last couple of years to allow for electronic payments, somebody’s going to have to cut scads of checks, attach the right forms, and send them in. And then business owners are going to have to contend with armies of officious state revenue inspectors from all over the country just waiting to audit their books.

    It sounds like a nightmare to me.

    And in fact, compliance was one of the main reasons for the online sales tax moratorium in the first place.

    It would all be much easier if, for example, a retailer in Illinois could charge everybody Illinois sales tax and be done with it. But under that scenario, every large online retailer in the country would move immediately to a no-sales-tax state.

    And finally, since compliance hassles have now been deemed a necessary cost of doing business … I wonder if this means that bricks-and-mortar stores need to ask for drivers’ licenses when making a sale to see what sales tax they should be charging. Lots of people routinely cross state lines to go shopping.

    Hey, what’s good for the goose …

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