Sales tax could be coming to online purchases
by Carol Thompson
Online retail stores earning over $1 million in sales may soon have to begin charging sales tax to customers, no matter where they live.
Federal authorizes believe the Marketplace Fairness Act could reap states between $3 billion and $23 billion annually in additional revenue. If passed by the House and Senate, each state will have the option of making businesses that aren’t physically located within their borders collect sales tax. Participating states will need to simplify their tax codes.
To simplify the collection, states must provide certified tax management software free of charge to any business required to collect the tax.
The 1967 Supreme Court case National Bellas Hess v. Illinois Department of Revenue set the stage for the debate on taxing Internet sales when, in its majority (5 to 4) opinion, the court ruled that “the many variations in rates of tax, in allowable exemptions, and in administrative and record-keeping requirements could entangle [the company]’s interstate business in a virtual welter of complicated obligations to local jurisdictions.”
Since Bellas Hess, out-of-state retailers have been shielded from the obligation to collect sales tax, based purely on the notion that it would place too much of a burden on their businesses.
Currently, states try to collect sales tax on online purchases by collecting it from the individual customers who are supposed to claim it on their state income tax, but states report that compliance is low.
The bill is also intended to level the playing field between brick-and-mortar stores and the Internet.
The bill passed the Senate last year but has received opposition from the house.
Dubbed with the hashtag #efairness, business owners who feel they are hurt by the lack of sales tax collection from cyber stores, have been calling for the bill’s passage, and hoping it will be done before the end of the lame duck session.
Image: Flickr/Tim Reckmann