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Democrat bill would allow state taxes on Internet sales

updated 12:30 pm EDT, Mon July 5, 2010

Current tax scheme may be hurting key services

A Democrat from Massachusetts, Rep. Bill Delahunt, has proposed new legislation that would remove the protections online retailers have enjoyed in terms of state sales taxes. At present, people buying from an out-of-state website are not required to pay the sales taxes that would normally be owed at a retail shop. The US Supreme Court has ruled that without new law, out-of-state retailers cannot be made to collect sales tax.

Although the status quo has helped to grow vendors like Amazon and eBay -- active opponents of the bill -- the backers of equal taxation have long noted that online exemption hurts state budgets, making it harder to pay for government services like schools and police. The National Conference of State Legislatures has praised Delahunt's bill, suggesting it may return as much as $23 billion to state coffers, if enacted. Another supporter of Delahunt is the Retail Industry Leaders Association, which has tax committee members including Walmart, Home Depot, Target and Ikea.

The bill's co-sponsoring representatives are Michael Capuano, John Conyers, Stephanie Herseth Sandlin and Peter Welch. None of them are Republicans, and beyond online retailers Delahunt is said to be opposed by some groups pushing for lower taxes in general.

To appease concerns about red tape, Delahunt's side is advocating the Streamlined Sales Tax Agreement, which was first created in 2002 by state tax officials and has since been adopted by 24 states in whole or in part. Participants must simplify tax codes and make them uniform. Another group complaining about the bill -- the AOL-, eBay- and Yahoo-supported NetChoice coalition -- claims that "the actual simplification achieved by the Streamlined Sales Tax Project is not nearly sufficient to convince Congress that it should abandon its role in protecting interstate commerce."

Companies like Amazon and eBay are technically required to pay local state sales taxes after voluntarily reporting the amount owed. Tax officials say, however, that few companies are actually submitting accurate figures.


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By Electronista Staff
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Comments

  1. jnicholas

    Fresh-Faced Recruit

    Joined: Sep 2002

    +5

    Doesn't make sense

    Lawmakers keep trying to get online retailers to pay taxes at the buyer's location. If I drive to a store in the next state and buy something I pay taxes for the store's location, they don't ask me where I live and collect those taxes. So why should online retailers have to collect taxes that way?

  1. bjojade

    Fresh-Faced Recruit

    Joined: Jun 2007

    -2

    Based on ship to.

    The tax should be based on your ship to location. If you pick it up, it's shipped to the store. It does make sense.

    If it was based solely on the sales tax of the location, mail order shops would quickly re-locate to only states with low or no sales tax.

  1. rickcj

    Fresh-Faced Recruit

    Joined: Aug 2009

    -4

    Taxes

    No more stinkin taxes.

  1. Bobfozz

    Fresh-Faced Recruit

    Joined: Jul 2008

    +14

    The REAL problem

    I am a mail order business and I've had a retail business for about 19 years in a brick and mortar location.

    Most legislators (and I have talked about this with a real legislator who DID understand my point) have absolutely NO CONCEPT of the outrageous red tape this entails. Each state has DIFFERENT taxing rules and different rates. They give extra money to all or certain counties. Iowa alone has 99 counties. Software for accounting would take a WHOLE NEW HIT. Anything most of us have now (and I do not own cheap-assed software like Quicken) would be completely out the window and cost thousands more in dollars and especially time to get straight. Only the really BIG guys can even come close to affording this.

    So many legislators are unequivocally STUPID and will not read the BILL nor try to understand the bill and just go ahead and pass it. I suspect this Delahunt is not much better unless he has actually been a sales tax collecting businessman. What is originally proposed NEVER becomes the FINAL thing and exceptions, regulations, incompetency all reign until the final product becomes a nightmare. This would literally put tens of thousands of people out of business because it would FORCE them to HIRE at least one extra person to keep track of all this c***--would that help unemployment go down? Not much, most people profess to hate arithmetic or any kind of mathematics. And the possibility of FRAUD just goes through the roof.

    I am not against helping states pay for their reasonable budgets. I am against idiots making these kinds of decisions. For those who do not believe in paying taxes, I wish there was some magical element that would take away all worthwhile services from YOU too. You are a burden to society and no doubt to your family too.

  1. boris_cleto

    Fresh-Faced Recruit

    Joined: Sep 2002

    -4

    Your responsibility

    Paying the sales taxes on out of state purchases is your responsibility. Failure to do so is tax evasion. Same thing goes for buying cigarettes at an Indian reservation.

  1. Dr. T

    Fresh-Faced Recruit

    Joined: Jul 2010

    +3

    Proposed Bill Is Unconstitutional

    States and localities have the power to charge taxes on sales and services that occur within their borders. They do not have the power to charge taxes on sales or services that did occur outside their borders. Some states try to enforce taxes on out-of-state purchases by requiring residents to self-report such purchases and make sales tax payments. These states have purchase taxes on individuals instead of sales taxes on businesses. Tennessee, where I live, is one such state. Of course, nobody reports out-of-state purchases, and Tennessee has no method of enforcing its law (that probably is unconstitutional but has never been challenged because no one has been convicted for failure to comply).

    Congress cannot simply enact a bill legalizing out-of-state sales taxes because such a bill would violate the Constitution (that forbids tariffs and taxes between the states). Every previous attempt to tax out-of-state sales has been overturned by the Supreme Court. A constitutional amendment is required to levy such taxes. (It would have no chance of passing.) Many of our Congresspersons are lawyers, and they know that the proposed bill is unconstitutional. I do not know their motives for proposing the bill, but I hope they continue to waste time on it so they'll have fewer opportunities to write worse laws.

  1. sribe

    Fresh-Faced Recruit

    Joined: Jan 2003

    +6

    article is incorrect

    "Companies like Amazon and eBay are technically required to pay local state sales taxes after voluntarily reporting the amount owed. Tax officials say, however, that few companies are actually submitting accurate figures."

    No, that should be "Customers of companies like Amazon and eBay..."

  1. BeatriceV

    Fresh-Faced Recruit

    Joined: Jul 2010

    +6

    Not a new tax

    I understand the position of smallbusinesses that sell online to avoid collecting sales taxes for every jurisdiction. However, small bricks and mortar businesses have to collect these taxes. They compete directly with online sellers in many cases. Sales tax introduces a price disparity that hurts local businesses. State and local sales taxes are voted on by local voters (or indirectly by the politicians that local voters put into office). Their intent is to collect money based on purchases, and use those funds to pay for local services such as police, fire, parks etc. An argument is often made that collecting taxes for so many localities would be a huge burden for online sellers. There are companies that can automated the sales tax collection process. Our company, Fed-Tax.net, offers such a service (called TaxCloud). It is completely free to the online retailer. It is certified to comply with the Streamlined Sales Tax Agreement, which means that TaxCloud calculates the tax due for any transaction in the US, and offers merchants advantages in terms of tax amnesty and tax indemnification from States that participate in the Streamlined Sales Tax initiative.
    I think that some of the voices in this debate are spinning this as a 'new' tax. In my opinion it is simply adjusting existing legislation to catch up with the reality that so much business is now being conducted online.

  1. malax

    Fresh-Faced Recruit

    Joined: Aug 2006

    +3

    Fairness

    I agree that without some help (that companies like BeatriceV's apparently provide today), collecting taxes on out of state sales could be complicated and costly, but this needs to be addressed. The current system is terrible for brick-and-morter business--especially small ones without multi-state operations already. For an expensive purchase like a computer or TV, it is cheaper for me to buy from Amazon or other out-of-state merchant than a local shop--even if the price is exactly the same. The state gets to charge $50 or $100 for the local sale and gets nothing from the mail-order sale. So fewer people buy from local businesses.

    Frankly I think the technical objections to this after overstated. Companies like PayPay, Visa, MasterCard, etc., etc., have the infrastructure and incentives to step in and make this easy for on-line sellers.

    Now the constitutional issues on the other hand... Those could be a deal-breaker even though the current regime is inefficient and unfair.

  1. kirkrr

    Fresh-Faced Recruit

    Joined: Jan 2005

    -2

    Taxation

    If I pay taxes in another state, what state government services am I potentially entitled to?

    If I pay taxes in another state, do I now have the right to vote in that state for any representation in any level of state government, or is this an example of taxation without representation? We have already fought one war over this issue - maybe it is time to fight another?

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