Here It Comes: a Web Sales Tax

With states needing as much revenue as possible during this recession, it looks like Congress is now ready to move in the direction of creating a sort of "Internet sales tax," forcing e-tailers such as Amazon.com, eBay and the like to collect sales tax on purchases even if the buyer is from a state where the e-tailer has no brick-and-mortar presence.

Previously, in a 1992 Supreme Court decision, Quill vs. North Dakota, the Supreme Court ruled that out-of-state retailers cannot be required to collect sales tax on purchases sent to states where they did not have a physical presence.

The Supreme Court’s reasoning was at least partially based on the fact that, at the time the case was decided in 1992, there were over 6,000 separate sales and use tax jurisdictions in the United States (states, localities, special tax districts, etc.) and to impose a collection obligation on a remote seller would impose a crushing burden that would severely restrict interstate commerce.

In other words, the tax structure across the U.S. is so complex that companies can't possibly manage all of them. Meanwhile, I earlier said the "end is nigh" when New York State first proposed the so-called "Amazon Tax," which it later passed, and which forces the Internet retailer to collect sales tax despite no brick-and-mortar state presence.

New York does this does this by saying that any retailer that has an affiliate in the state (meaning, a site like this one that advertises for them), therefore has a de facto brick-and-mortar presence.

According to the New York Post, however, a bill is going to be introduced in Congress this week to require tax collection, without even such shenanigans. Just a law that would say "collect it," so to speak.

It's not really that a buyer from California, say, that buys from Amazon.com doesn't owe any sales tax. There's a place in the California Income Tax form for "use tax," unpaid sales tax that taxpayers are supposed "fess up" to. Naturally, you can imagine what percentage of taxpayers do, whether because they simply don't know the law or because they simply don't want to pay it.

But it is in fact extremely difficult, given the myriad of tax laws across the country, for a retailer to be able to collect taxes accurately.

Rather, retailers don't want to spend their time keeping track of a complex array of differing state, municipal and city tax rules.

Jonathan Johnson III, president of online retailer Overstock.com, said:

"If we ship something out to Long Island right now, we don't know what sales tax to charge or collect. And there may be two or three different levels. There may be a state level, a county level and a city level."

One possible solution would be to have a simplified sales tax across the country for Internet sales; this would give the states some revenue. An alternative would be to simplify sales tax across the country, period. Or they might just write the law and have the retailers bite the bullet, and have to collect taxes based on the thousands of different sales tax rates across the country.

Amazon.com and Overstock.com filed suit against the state of New York over its tax law, but the suits were thrown out. The retailers are appealing, but given this bill, it may be a moot point.