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Summary:

Retailers have long complained it’s unfair that online retailers don’t have to collect the same sales tax. Now that a proposed law is about to change that, politicians are warning it will hurt the internet economy.

A conservative Republican claims a plan that will allow states to tax online retailers is “taxation without representation” and that it will punish internet entrepreneurs.

Sen. Jim DeMint (R-S.C.) made the comments in the Wall Street Journal to oppose the Marketplace Fairness Act, a bill intended to curb the advantage that sellers like Amazon (whose large online sales led to the bill in the first place) and eBay have over traditional shops. Right now, the online retailers can sell cheaper because they don’t have to collect sales tax in states where they don’t have a physical presence.

The “fairness” argument appears logical and enjoys bipartisan support, but DeMint argues that it could lead to companies having to engage with thousands of state and municipal taxing authorities. He raises the example of a small business in South Carolina facing simultaneous audits from California, New Jersey and Hawaii:

The burden on Internet entrepreneurs could be staggering. There are already nearly 10,000 state, local and municipal tax jurisdictions to navigate nationwide.

DeMint’s arguments may be alarmist. The law, as it stands, would not apply to firms that sell less than $500,000 a year and lawmakers are also working to create a simplified method for sellers to collect tax across states. But DeMint also raises the interesting questions about how far internet-related taxes could be applied in the future: downloading taxes? a national online sales tax?

Despite opposition from DeMint and companies like Overstock, the law appears set to pass. Amazon itself, under pressure to pay from a growing number of states, endorsed the bill earlier this summer.

This means consumers who don’t live in New Hampshire, Oregon, Alaska, Montana or Delaware should get ready to pay more for online purchases.

(Image by Michael D Brown via Shutterstock)

  1. This is a member of the same Republican party that opposes statehood for D.C.?

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    1. Republicans only oppose statehood for D.C. because that would give democrats 2 more Senate seats. Dems would unfortunately do the same thing if D.C. was a GOP stronghold.

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  2. …(sigh)…come on writers….there are facts that can be easily found.

    “This means consumers who don’t live in New Hampshire, Oregon, Alaska, Montana or Delaware should get ready to pay more for online purchases.”

    Unless of course you live in one of the states where Amazon customers already pay sales tax…..and yes, there are six of those. Jeez…is it too much to ask that journalists actually look up some facts before they start writing?

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    1. Since the author states: ” Amazon itself, under pressure to pay from a growing number of states…” he seems to know Amazon charges tax is a number of states now.

      This isn’t just a tax bill about Amazon. It’s about ONLINE RETAIL and the author’s statement you quoted is correct.

      For those of you who could’t figure it out, maybe he could have added parenthetically “except on Amazon purchase in in the six states where consumers already pay taxes on those purchases.” Oh, and maybe “except for Overstock purchases in Utah, etc. where consumers already pay taxes on those purchases…” and why not “Except on Drugstore.com purchases in Nevada, etc. where consumers already pay taxes on those purchases…” Duh.

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    2. Thanks for the comment Rusty Neff. I may not have been clear as I could have been but, as Travis states, the law appears to expand state sales taxes to all online purchases (except in the those states that have no sales tax). But, yes, some states are taxing Amazon already — presumably on the grounds they have a physical presence there.

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  3. Gareth W. Stewart Wednesday, August 1, 2012

    Your commentary trivialized the Senator’s central arguments, concerning the nation’s founding in the mantra of no taxation without representation and the privacy issues presented by the proposed law.

    You appear to believe that there’s an inherent right of government to impose or collect taxes, and (as to the supposed “fairness”) you suggest (absurdly) that an Internet marketer with a physical location in, say, Alaska, whose product is bought by a New York surfing the Internet, has somehow caused New York to lose out on the sales tax on that purchase.

    But can’t we suppose that, but for the Internet, the New Yorker never would have seen or known about the Alaska vendor’s product (and thus, the purchase wouldn’t have been made); or, but for the Internet, the New York would have traveled to Alaska to purchase the product.

    The Senator’s next (and larger) privacy point was that, to administer the tax, purchaser location data will have to be collected.

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    1. Thanks for the comment, Gareth. I wasn’t attempting to trivialize Senator DeMint’s argument. I think he raises valid questions about whether that the law breaches the historic requirement for a nexus between the taxing state and the citizen. But under the Supreme Court’s 1992 Quill Corp decision, the states appear to have the power to tax online retail — provided Congress gives them permission to do so. I’m not weighing in on the question of whether the tax is a good idea or not.

      Your final point is more intriguing — will the tax mean shoppers wil have to disclose more personal data than they do already? Good question.

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    2. Purchaser location data: wouldn’t that be evident by the IP address? Also, there is no “inherent” right of government to levy taxes — its a constitutional law. In this country we abide by constitutional rights and laws, not those speculated by philosopher’s from the 16th century. True, many precepts and rights in our constitution are derived from those same enlightenment thinkers, but most all were well tweaked and honed into fashion for the ability of a genuinely elected government to function. Revenue collection is one method that allows a government to function and sales taxes tend to be favored by conservative thinkers because of the equal and indiscriminate distribution of burden. States need the revenue and any online sale transaction by a company with a physical store in the state of purchase is liable for tax collection. The shift will create parity with other large operations such as Target, Wal Mart, etc. There is no point to the Senator’s comments except that he’s shilling for attention and campaign contributions.

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      1. You said, “sales taxes tend to be favored by conservative thinkers because of the equal and indiscriminate distribution of burden.” You are right that conservatives would prefer no taxes as all but when forced to vote for (instead of against) a tax they would rather a tax that is the same amount per person, rather than the same percent of income per person, and at this point in history, I don’t think there is any way to get a conservative to vote for a progressive tax, i.e., one where rich people pay a higher percent of income than poor people.

        Of course, we liberals prefer progressive taxes because we’re all poor.

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  4. I’m no fan of Amazon’s growing monopoly and hypocritical backing by the government, but this will make me simply buy less. Not less online, but less period.

    I am quite certain I am not alone.

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  5. I’m a little confused. How exactly does the federal government have the power to operate on behalf of the states and their right to tax, which is different from the federal government’s ability to tax. I understand that it “might” fall under interstate commerce. But this has to deal with how an individual state collects its own taxes apart from the federal government.

    Kind of begs the question of why more states simply don’t enforce the collection of tax on online purchases. There are already several states that do.

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    1. thanks for the comment, eojsmada. Constitutional law is not my area of expertise but my guess is that Congress is drawing on one of its enumerated powers — possibly the Commerce Clause — to exercise the ability to tax, and then assigning that power to the states. In other words, while one state can’t tax another, Congress can tax everybody. This is just an off-the-cuff analysis; I welcome anyone to step and correct/clarify.

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      1. Actually, the Marketplace Fairness Act would simply authorize states to require (or not require, if they so choose) out of state retailers to collect sales taxes on purchases made in their state. Since the 1992 Quill vs. North Dakota decision by the US Supreme Court, states have been prohibited from requiring collection from out of state sellers. In that 1992 decision (which actually considered catalog sales and predates modern e-commerce), the US Supreme Court specifically called out Congress as the appropriate place to take up this issue in the future, saying this issue is “not only one that Congress may be better qualified to resolve, but also one that Congress has the ultimate power to resolve.” For more on the issue and Amazon’s perspective, read the prepared testimony from Amazon VP of Public Policy Paul Misener – http://phx.corporate-ir.net/phoenix.zhtml?c=176060&p=irol-newsArticle&ID=1720649&highlight=

        Jeff John Roberts – I also wanted to correct your assertion that Amazon just recently decided to support this legislation. We actually issued a statement of support of the bill last year on the day it was introduced (Nov. 9, 2011). That statement is here – http://phx.corporate-ir.net/phoenix.zhtml?c=176060&p=irol-newsArticle&ID=1628503&highlight=

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  6. Tax at consumption. I drive to Alaska I pay Alaska prices. I receive my purchase in new york, I pay new York taxes. I order an online service from a californian company, I pay any applicable service taxes levied in Cali.Surely the ‘burden’ on etailers can extend to checking the ‘ship to’ address. Oh and if I pay 3rd party to pick up and deliver? That’s technically a reseller so same deal applies. With online gambling coming next, defining state lines online will only get much stickier.

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    1. I am opposed to this on the 10th amendment and also on slippery slope grounds. If the Congress can force me to pay other states’ sales taxes, they can force me to pay a VAT to the federal government. These are huge tax generators for the Euro-socialist countries. In most of them the tax is 20% on all purchases including online

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  7. Wonder why the economy is in the tank, folks? Let’s review the policies: Punish, punish, punish (using the word “fairness”). How is raising taxes on online sales good for anyone? If you’re a bricks and mortar retailer and you haven’t figured out e-com, you’re going Darwin. Companies adapt or perish. But, of course, another excuse to tax us while “being fair” to those big, mean corporations.
    Sickening.
    I’m sick of giving my money to the government.

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  8. Murray Macdonald Friday, August 3, 2012

    Amazon is not only paying tax, they are building warehouses all over the US so that they can achieve same day delivery. With the possible exceptions of clothing and grocery this is going to kill retail as we know it. The unemployment is going to cost more than the taxes collected from Amazon.

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  9. If brick&mortar businesses can survive while paying the higher fixed costs for operating a physical store, then I’m sure “internet entrepreneurs” will manage.

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  10. Murray Macdonald Friday, August 3, 2012

    If online retailers with sales under $500K do not need to collect tax they will have a distinct advantage. I predict we could see transient online retailers who reincorporate and transfer their domain ownership as they approach the $500K tax collection limit. To close the loophole both the retailer and the domain would have to be restricted. This could get messy.

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