The State of the Internet Sales Tax

Posted by: Olga Kharif on April 20, 2009

Companies like online retailer Amazon.com, iTunes service provider Apple and software maker Microsoft have been fighting Internet taxes for years. Back in 1992, the Supreme Court ruled in Quill vs. North Dakota that states can’t make companies with no physical presence in their states collect those states’ sales taxes. That means that Amazon.com may only be required to collect sales taxes in states like Washington State, where it has facilities, and not in others. Well, there’s an effort under way to change that.

In the next week, legislators are expected to introduce bills in the House and Senate promising to do away with the “physical presence” requirement. If a bill passes — and that’s a big “if” — it would require all online retailers, except for the tiniest companies, to collect sales taxes in the 23 states that are part of the Streamlined Sales Tax Project. The states would compensate the retailers for the trouble, while promising not to sue them for tax collection mistakes that are made.

Folks from the National Conference of State Legislatures that’s helping Congress draft this bill believe it could pass this year. But analyst Blair Levin from Stifel Nicolaus, a firm that’s extremely plugged into Washington politics, is not so sure. “We are skeptical that this Congress will enact legislation to facilitate state (and possibly local) taxation of online sales, though the effort appears to have a somewhat better chance than in prior Congresses,” he wrote in an April 20 report. While states’ financial difficulties and the Democratic majority in Congress should help NCSL’s cause, “we note continuing resistance, particularly among Republicans but also among Democrats, to taking actions that can be seen as raising taxes, particularly during a recession.” What’s more, Levin notes, “we believe a number of lawmakers in both parties will be reluctant to support a measure that would hamper high-tech growth.”

Interestingly, Neal Osten, federal affairs counsel at NCSL, says that Amazon.com actually supports his organization’s cause. He points out that 1,100 online retailers already voluntarily collect sales taxes outside of their physical borders. “Amazon’s biggest concern is that the system is different from state to state,” he says. I’ve left Amazon.com a message but haven’t heard back yet.

But here's a company that vehemently opposes NCSL's proposals: eBay. The auction giant is trying to protect the interests of its sellers, who may be forced to take on the extra expense and hassle of collecting sales taxes.

Whether the federal bill passes remains to be seen, but what's clear is that, as states try to plug holes in their budgets, more and more of them will be re-evaluating whether to charge an Internet tax. Osten says that Florida, Texas, Illinois, Massachusetts, Connecticut, California and Hawaii are considering joining the NCSL push. Were all 50 states to collect these sales taxes, they'd collect an extra $7.5 billion each year, Osten says.

That said, efforts in several states have fizzled. New York's governor, for instance, has recently tried to tax iPod downloads, such as music and movies. The provision didn't make it into the state's final budget, approved two weeks ago. In Minnesota, a bill designed to tax digital content such as music and ringtones was, in early April, introduced in the House, but it appears to be stuck in the Senate. "There's clear opposition from the IT industry," says Minnesota Rep. Jim Davnie. "Apple, Microsoft have been in my office."

Eventually, Davnie says, all Web sales have got to be taxed in the same way as those at brick-and-mortar retail stores. After all, past regilation had held off on imposing the tax for fear of crushing the fragile Internet economy that was, back then, still very much in the start-up mode. Now, "it's no longer this fragile baby you are afraid to get crushed," Davnie says.

Now, it's the might of the online tech giants could hamper the bills' progress. After all, they've gotten so much might, they might be able to effectively block all federal sales tax moves.

Reader Comments

Edward England

April 21, 2009 3:17 AM

I have an online business and I don't have a problem collecting a tax but it needs to be a flat rate.

Here in Washington State I need t collect the tax bases on where the customer lives. Every town in every county has their own tax rate. It's a mess. Multiply that by 50 and it will be a nightmare.

Edward England

Rokr

April 21, 2009 10:01 AM

Are sites that are based out of the United States also harrassed by this law? I bought a cheap Blackberry phone from Canada via TigerDirect. TigerDirect is in Canada and the US, so I wonder if I bought it on the Canada site would I still have to pay.

The Canada store is cheaper, even with the exchange rate :)

Yomen

April 21, 2009 10:02 AM

For those of you that voted for Obama, this is what you get. Nice job.

David Stanworth

April 21, 2009 2:11 PM

I hope this gets stopped in it's tracks. Sales Tax paid to all 50 states would be ridiculous. The amount of paperwork, hassle, raw book keeping would put online businesses at an extreme disadvantage to brick and mortar businesses. And what the government doesn't realize is online businesses bring in money from international sources, bringing money into the country is something brick and mortar store's don't do.

Dar

April 21, 2009 2:54 PM

Internet taxes sound bad at first, but there is some truth to the avoiding sales tax argument. Perhaps a good compromise would be to level a flat sales tax (say, 5%) to get something for the states, but give the companies a break in managing the laborinth of various state sales tax rules.
Besides, I can imagine dozens of ways to get around this as well.

Zac

April 21, 2009 3:06 PM

The last thing we need is government controlling even more of our money. They've done so well with what they've taken already.

TheCapitalist

April 21, 2009 6:19 PM

Remember that if you make less than $250,000, Obama promised that you wouldn't pay a "single dime" more in taxes.

myfreedompost.com

Williamhp

April 21, 2009 7:08 PM

Chinese local government(Beijing, Shanghai)had issued similar online sales tax regulations last year.But these regulations are difficult to work.

Joe O'Malley

April 21, 2009 9:02 PM

""""There they go again"""" tax and spend, tax and spend. If they keep it up there won't be anything for them to spend because we won't be able to buy anything

John Hensley

April 21, 2009 10:41 PM

More big brotherism. Tax collection for all internet sales will hamper and stifle growth and recovery. It's a bad idea. Let the states figure out another way to improve their budgets, like reducing spending and costs.

Trish

April 22, 2009 12:10 AM

"...actions that can be seen as raising taxes, particularly during a recession." Consider this: the tarriffs and taxes surpassed due to internet technology may actually be a contributor to the recession and part of the solution. Please give further consideration to the fact that the U.S. government invented the basic internet and without Uncle Sam's contribution, people of all nationalities would not have online businesses or the cost-saving advantages of e-mail, videoconferencing, etc.

Taxing internet sales is just the beginning of the legislation needed for the internet. Ultimately, global e-commerce cannot be controlled by the U.S.A. A global council is needed to oversee the management of tarriffs around the world, as well as security and other issues. There is probably a connection between the facts that businesses have globalized at an astounding rate due to technology and economies around the world are failing. It has gotten out of control, and great leaders will grab the reigns.

Hard Working Domestic Terrorist

April 22, 2009 12:15 AM

Re: David's comment above:
This could easily be passed off as "stimulus". Even though it would hurt and possibly discourage private sector growth, the additional paperwork, hassle and regulatory levels will no doubt spur expansion and growth at the public sector, thereby "stimulating" the governments economy. Those in government, especially those in power currently, realize this all too well, and by weakening the capitalist private sector it gives them ample reason to "save" us from ourselves and our immoral ways. God help us.

The Carpetbaggers are Coming to a Town Near You!

April 22, 2009 12:44 PM

This is outrageous!

This will slow the economy down even more as it will steer people away from buying!

This by far the worst president of the United States and his mediocre answers are weak and indecisive. At least he will be noted in the history books for something, which is what he wants. He wants to be the dude who has everyone bidding to sign his High School annual.

As I say to my children "be careful what you wish for", and more often then not I say "you get what you deserve."

Chris

April 22, 2009 3:15 PM

Mosts States have a Use Tax and the purchaser is suppossed to pay it to the State they live in on goods they bought out of State and did not pay Sales Tax on. However, enforcement is a problem unless the Seller reports the Sale the the State the product was shipped. An automated info email or feed to each State would be a lot easier for the Seller than collecting and remitting Sales Taxes.

Bob

April 22, 2009 6:27 PM

Let's get rid of all income, Social Security, Medicare, corporate income, death, self-employment, capital gains, gift, and the alternative minimum tax and put the FairTax in place!!!

Suraj Tschand

April 22, 2009 11:57 PM

Sales tax for a retailer is the biggest disaster ever. The retailer is forced to do something that the Government itself can not do. Collect. To collect sales tax for every state is beyond comprehension. A retailer has to file forms with 50 states. These forms are the most confusing forms I have ever seen. Every state has its own rate and its own set of rules. Three digit decimals, fractions, diplomats, reseller numbers, and other things are part of dealing with sales tax.

Cathy

April 23, 2009 11:42 AM

If anything brick and mortar companies should start offering online stores to compliment their physical store instead of pouting about not getting their piece of the pie. If they were smart they would realize that they need to try and adapt to the new venue of sales through online stores sales.

It is up to us to stop this in its tracks folks. How many of you think congress will listen?

Jo

April 23, 2009 4:58 PM

This is a SHOUT OUT to all of you people who voted OBAMA into office.....YOU WANTED HIM..NOW WE HAVE TO PUT UP WITH THE $%^&!!!....After all the money he has thrown around like water, he has to find some way to get it back.....

My God, aren't we taxed ENOUGH??????????

(BTW, this is the first election EVER that I did not vote democrat)

Jo

April 23, 2009 5:02 PM

I also resent the fact that my comments have to be reviewed before being posted....Whatever happened to free speech????

Greg

April 23, 2009 9:49 PM

"If anything brick and mortar companies should start offering online stores to compliment their physical store instead of pouting about not getting their piece of the pie."

Thats exactly the problem, brick and mortar stores that exist in your state have to tax even online orders so it is a huge disadvantage to them and not fair. What most people don't realize is that the amazon tax is not a new tax, its a tax that everyone is supposed to be paying right now. Its just its up for to the buyer to declare and very hard to enforce so no one actually does. I'm all for lower taxes across the board but its not fair to require barnes and noble to charge tax for a book i buy from them online but not when i order from amazon.

Patty

April 24, 2009 8:09 AM

Yomen, although I did not vote for Obama, this is more from a Democratically controlled congress than just simply Obama.

But yes, this bill sucks.

Would they require everyone on e-bay and other auction sites to collect taxes? Many items are used, or bought once and then re-sold. The taxes have already been paid. Then again, when did that ever stop a democrat?

Ebay Seller

April 24, 2009 11:36 AM

This has nothing to do with our President. I've been on Ebay since 2000 and they have been fighting this fight every year ~ long before our President was in Washington. So please, stop the bashing and get into the real fight.

Eventually a tax is coming and we can only hope it will be one simple low rate that is reported on one simple form.

Collecting and paying Sales tax to one State can be confusing enough. There is a State Rate and every County and City has an additional code and rate, plus some areas also have Mass Transit and Hospital rates. Multiply that by 50 States, thousands of Counties, Cities, etc. and a small online seller is out of business. They won't have time to do the paperwork!

Concerned people can shape and/or delay the debate. Let your Local and State elected officals know: Now is NOT the time to increase online taxes.

Additional taxes will decrease sales because most online buyers want to pay less and get a deal. Plus, Collecting and reporting the taxes will cripple small sellers the most. Many of us are just trying to pay for luxuries like the Light Bill and Dinner.

Diana

April 25, 2009 12:42 PM

As an owner of an e-commerce website a tax on sales would definately hurt. However, worse than that would be the necessity to file quarterly tax returns for each state!

Many states are already forcing the sales tax issues on stores who do high dollar sales in their state, claiming it represents Nexus or a presence in the state.

Greg is correct, the tax is supposed to be paid by the consumer right now. Most of the states have a 'sales and use tax', which means that if you use it in the state you are required to pay tax on it. They usually have places on their State Tax returns where you can declare what you purchased and add the amount due to your tax.

If you buy a car out of state they collect the sales tax when you register the vehicle. Internet sales are a little harder to track but the concept is the same. You buy a lamp from the interent or a catalogue and you owe the tax. Currently it is not required to be collected by the website or catalog
but you still owe it.

The states have no mechanism for collecting this from the consumer. Therefore they will pass that burden onto the seller.

Diana

phi

April 26, 2009 8:49 AM

"Greg is correct, the tax is supposed to be paid by the consumer right now. Most of the states have a 'sales and use tax', which means that if you use it in the state you are required to pay tax on it. They usually have places on their State Tax returns where you can declare what you purchased and add the amount due to your tax."

Required. I love that word when used by some state parasite. It is fun and challenging to avoid sales taxes. When they make it harder to avoid them, it will be even more interesting.

Diana makes the point about vehicles, where you actually have to come into contact with the parasitic state, therefore paying the tax. But, most things purchased do not have that unattractive association.

I guess I will be buying alot of used stuff, or telling the retailer he can pay the tax if he wants to sell it to me. I don't expect that he will, unless he is a small desperate outfit. But, it will be fun when some sales guy walks up to me perusing a $1000.00 TV, and I tell him I will take it without the sales tax.

I would rather pay freight to UPS than see the state get a penny.

Mark Sanders

April 26, 2009 1:20 PM

Most likely what will happen is a company will emerge to handle tax payments for each state through a monthly fee paid by the online store. This company will make millions and cost billions collectively in added expenses for online stores. It's really not that difficult, but it would be a change. An individual resale certificate for each state would be reduced to one certificate for all states involving online stores. Perhaps the participating states could pay for this service making the monthly fee 0 for online stores. This would make it in theory a win for the states in added revenue without effecting as much the online stores.

basspig

April 26, 2009 11:06 PM

One other thing not mentioned enough is that people who buy online face two other challenges:

Shipping expenses and a waiting period for that shipment to arrive.

Taxing online sales would push people away from internet sales because tax on top of shipping and the waiting and the high cost of the occasional returned defective product will making doing online shopping highly unattractive.

Patrick Henry

April 27, 2009 5:03 PM

We are taxed way too much already! Government's problem is not too little revenue, but profligate spending. Taxation is raw political power. Wake up America. Every tax increase is Government putting a gun to your head and demanding more money, but there never seems to be any improvement to show for it! We already work from January through May for the government when you add up all the hidden and not so hidden taxes! Rise up and say no to power grabbing politicians by voting out of office any politician, whether Democratic or Republican, who raises any tax.

Barbara Boyce

April 29, 2009 7:46 AM

I owned a B&M store for 15 yrs and also have stores online. The sales tax was a disadvantage to my B&M as the internet grew because folks grumbled about paying tax. "I can get it online" was the call!
The growth of the internet sales hurt my B&M store which closed in 2008.

Internet transaction sales are taxable, and could be handled much more simply if taxes were based on location of the seller not the buyer. Eg: if I live and work in NY, the tax collected goes to NY.

The system that bases tax on location of the buyer is too complicated to use accurately on a national scale.

No tax would be best. A flat tax by location of seller would be managable and would benefit state economies.

Keith Yockey

April 30, 2009 8:58 PM

There is no need for a new tax or the legislation. States simply need to enforce existing Use Tax Law, and it is simple to do. Simply have the Merchant Accounts (Visa, MasterCard. PayPal) collect the tax and remit it directly to the states. In turn, the States would pay for the associated fees. Details here http://www.thedumbdog.com/blog

Sen K

May 1, 2009 2:58 PM

Internet sales are needed for the states. I don't buy the arguments that it is very difficult for them to manage the paper works. They should be taxed as any brick and mortar retailers are for every city.
For God sakes, they are using computers and just add sales tax by the shipping zip code.

Norton

May 2, 2009 1:18 AM

Last I read there were approximately 7200 separate tax districts in the US. There are two in my own (tiny) zip code! Brick and mortar retailers deal with a single tax rate. From a real-world standpoint, I can tell you that calculating AND reporting AND paying taxes on sales to hundred (thousands?) of different tax districts would simply be impossible for a small internet retailer.

Keith Yockey

May 6, 2009 12:21 PM

'For God sakes, they are using computers and just add sales tax by the shipping zip code.'
Tax districts are not defined by zip code. That is but one of the problems. Software is not readily available, and if it was, would be cost prohibitive for small business. How would YOU like to make monthly or quarterly reports to 45 States, and comply with individual State Law and Districts? This will put small business OUT of business.

Janet

May 18, 2009 5:57 PM

I have not trouble collecting the taxes, if as someone else mentioned, they are flat rate. Texas and California would both be nightmares to get entered. And the thing that puts me off is the amount of paperwork this would generate. You would have to file quarterly taxes for all 50 states!

Jingles

June 1, 2009 10:55 PM

To make it fair to internet business I want the govenrment to require brick and mortar stores to charge shipping fees for all sales even though they dont ship. See how dumb this argument is? If a brick and mortar business says its "unfair" they have to collect sales taxes, then it's unfair online retailers have to collect shipping charges. (they dont have to collect shipping but they probably wont be in business if they didnt).

The whole fairness argument is retarded

LuC

June 11, 2009 12:29 AM

I think if this tax law is passed on the internet retailers, it will also have a very negitive effect on B/M stores.The little guys selling on the internet keep a lot of people working , therefore stimulating the economy.Anyone who knows intermet sales, knows how much spending goes into postage , therefore helping the USPS to keep postage cheaper for the B&M store to benefit as well.Not to mention the business the little guy generates for multiple freight companies, FedEX, DHL, UPS, ect...Just think of the impact on unemployment in these companies if shipping is decreased .Add that to the all time highs on unemployment rates in the US.Hey, that will really get the economy going!!!NOT!

Rob - the Tax Man

June 11, 2009 8:41 PM

They should NOT tax any used sales (like stuff on eBay by private sellers) under any circumstance - the original product was already taxed at the first sale. We should just go to a National Fair Tax and prohibit all states from taxing anyone on income or property - but to just take their proportionate share from the federal receipts based on population. That would be fair to all and equal to all.

Roger

June 19, 2009 11:41 PM

How will this affect people who are operating in other countries? For example, buying a server in the US and selling goods from that server, even though the business is registered in say Australia?

rich

June 26, 2009 4:06 AM

What an astounding litany of petty gripes from a bunch of selfish tax cheaters. Brick and mortar businesses employ more people and contribute more to their communities than online bottom feeders, and they are getting screwed by unfair competition. Do you want there to be book stores, musical instrument stores and such in your communities, or do you think you'll be better off without them? How much product do you chair jockeys think you are going to ship when unemployment hits twenty percent?

Daniel Caldwell

June 28, 2009 6:50 PM

This is a question for the person who is writing this blog. How are they going to enforce the tax if the companies are located outside of the us? Wouldn't it be on the consumer to pay this tax? If so, are they then asking us to keep track of every purchase made , then send an additional chunk of money out of our pockets at the end of the year to never-never land? This just doesn't make any since. Companies are just going to escape the tax by leaving the country like our factories did. If you think the economy is bad now, wait til this happens. I don't know how many people are employed by e-commerce companies, but i'm sure its alot. When these companies pack there bags and move over seas I guarantee you they arent going to take there employees with them. Our country is digging itself a hole and eventually we wont be able to get out of it. It's time for us to stop putting the blame on somebody who only has the power to VETO and start letting our local members of congress know how we feel. Obama isn't the one making these bills, its our local and state representitives. Obama didn't put them into office, you did. And you alone are the only ones who have the power to replace them. We are the people!! There is no country without the people in it. God Bless America!!!!

Michael E.

July 19, 2009 8:20 PM

No. The answer is no. Not now. Not ever. We will never accept a sales tax on the internet. Period.

Even if Obama and his idiot Dems in congress passed a law, the answer would still be NO.

If I have to, I'll put up shell sites in countries all over the world and bounce the transaction through 20 different countries.

Come hell or high water - the answer is NO.

doug

August 14, 2009 10:56 PM

As a retailer with both brick and mortar stores and internet business. I can't wait until they tax the internet. It's incrediblly unfair that I can stock a $2,000 guitar for the cutomer to see it, play it, touch it and then have them go buy it over state lines to save $120 in tax.

Ted

August 23, 2009 1:31 AM


How is this fair business? An internet company has a 4 to 9 percent advantage in selling a product.

You do pay shipping charges at B/M stores it’s fixed into the price of the product.

It makes a regressive tax more regressive, because only those with internet access, a credit card, and a home or workplace where they can accept daytime deliveries are able to take advantage of the tax exemption.

Where are people’s ethics? U.S. population never ceases to amaze me in how selfish and unintelligent they are.

Neil

October 14, 2009 2:51 PM

I agree with Doug above. I constantly have to defend the sales tax issue. People have no reservation about coming in to my store, learning about the product and buying on line to save the tax. They still send their kids to local schools, use local roads, have local law enforcement and fire protection. They just want me and other local purchasing customers to pay for it on their behalf.

Mark

October 25, 2009 2:36 AM

I own a Brick and Mortar business and run a quality online store as well. I agree that many use my well stocked showroom as a learning facility only to buy online and save the tax. There is a simple solution and that would be a 6% internet flat tax. Anything else would cripple my accounting department and bury my small business. Anyone who argues we could adopt a state by state system has never been involved with collecting and reporting sales tax.

Rowan

November 12, 2009 5:34 PM

How does it make sense for a family earning $24K/yr, spending 500/mo. on food to be taxed on 1/4 of their income, while a family making 240K/yr spending 500/mo on food be taxed on 1/40 of their income? (Assuming your state has sales tax on groceries). At the very least, sales tax should only be put on luxury items...NOT on food/clothing/shelter/school supplies/etc.

Large online businesses with a customer base in the hundreds of thousands can probably afford to pay tax to states and the paperwork it entails. But what about the small business? Candlemakers, making beeswax candles by hand. No storefront, as they can't afford it, so they deliver locally and sell online to out of the area customers. They are barely making enough to live comfortably and pay off the loans they took to expand the workshop and buy better equipment. (This is a real example.)

Ketch

November 25, 2009 9:35 PM

As an small e-bay seller of antiques, I cannot fathom the difficulties that would be visited upon me and my fellow small businesses should we be asked to collect and submit sales taxes to all the sates, counties, and cites to which we ship our goods. Most of us sell a few thousand dollars worth of goods a year on e-bay. The hassles involved in collecting sales tax on such puny sales would drive many of us out of business. That would mean a loss of income tax revenues to our states and the feds. Kind of like cutting one end off a blanket and sewing it to the other end to lengthen it! It would also mean we would have less money to spend locally, whether for groceries, durable goods, dinner out, or for an item to sell on line.

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Bloomberg Businessweek writers Peter Burrows, Cliff Edwards, Olga Kharif, Aaron Ricadela, and Douglas MacMillan, dig behind the headlines to analyze what’s really happening throughout the world of technology. Tech Beat covers everything from tech bellwethers like Apple, Google, and Intel and emerging new leaders such as Facebook to new technologies, trends, and controversies.

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