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Democrats push for new Internet sales taxes


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July 2, 2010 12:28 PM PDT

Democrats push for new Internet sales taxes

by Declan McCullagh

The halcyon days of tax-free Internet shopping will, if Rep. Bill Delahunt gets his way, soon be coming to an abrupt end.

Delahunt, a Massachusetts Democrat, introduced a bill on Thursday that would rewrite the ground rules for Internet and mail order sales by eliminating the option for many Americans to shop over the Internet without paying state sales taxes.

At the moment, Americans who shop over the Internet from out-of-state vendors usually aren't required to pay sales taxes. Californians buying books from Amazon.com or cameras from Manhattan's B&H Photo, for example, won't be required to cough up the sales taxes that they would if shopping at a local mall.

This is hardly a new debate: pro-tax officials and state governments have been pressing Congress to require taxes to be collected for a decade or so. They argue that reduced sales tax revenue threatens budgets for schools and police, and say that, as a matter of fairness, online retailers should be forced to collect the same taxes that brick-and-mortar retailers do.

But with states scrambling for new sources of revenue during what may be a double-dip recession, pro-tax lobbyists are hoping that they'll have better luck this year. The National Conference of State Legislatures applauded Delahunt's legislation, saying he should be commended for allowing states to collect as much as $23 billion in new taxes.

So did the Retail Industry Leaders Association, whose tax committee members include Wal-Mart, Home Depot, Costco, AutoZone, Target, and IKEA.

On the other side are groups that advocate for lower taxes and retailers including Amazon.com and eBay. In a statement on Friday, Tod Cohen, eBay's vice president for government relations said: "At a time when unemployment rates are high and small businesses across the country are closing shop, we are confident that Congress will protect small Internet retailers and the consumers they serve from another Internet tax scheme."

Co-sponsors of Delahunt's bill, the "Main Street Fairness Act," include Reps. Michael Capuano, John Conyers, Stephanie Herseth Sandlin, and Peter Welch, all Democrats. No Republican has signed on as a co-sponsor.

The final version of Delahunt's legislation had not yet been made public on Friday, and his office did not immediately respond to queries from CNET. But it's expected to be similar to other versions he's introduced before.

Earlier versions were drafted in response to a U.S. Supreme Court decision saying that, in general, out-of-state retailers can't be required to collect sales taxes unless Congress changes the law. The justices noted in a 1992 case called Quill v. North Dakota: "Congress is now free to decide whether, when, and to what extent the States may burden interstate mail order concerns with a duty to collect use taxes."

One exception to that rule is a legal concept called "nexus," which means a company can be forced to collect sales taxes if it has a sufficient business presence. If Amazon had an office in California, it already would be collecting sales tax for Golden State residents. (Another exception is the sale of cigarettes, which is covered by the Jenkins Act.)

In response to complexity concerns, the pro-tax forces have offered a proposal that they hope Congress can be persuaded to adopt. The concept is called the Streamlined Sales Tax Agreement, invented in 2002 by state tax officials hoping to straighten out some of sales tax laws' most notorious convolutions.

Since then, some 24 states have signed on, either wholly or partially, to the agreement, meaning they agree to simplify their tax codes and make them uniform. If enough states participate, proponents believe it will be easier to convince Congress to make sales collection mandatory for out-of-state retailers.

"Despite a decade of trying to reduce the unreasonable burdens cited by the Supreme Court, 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," Steve DelBianco, executive director of the NetChoice coalition, said in e-mail on Friday. Coalition members include AOL, eBay, Expedia, and Yahoo.

There is one caveat under existing law: online purchases from sites like Amazon and eBay only seem to arrive tax-free. Legally, however, purchasers are required to pay their own state's sales tax rate--the concept is called a "use tax"--and then voluntarily report the amount owed at tax time. But, state tax collectors say, few do.

State tax collectors haven't exactly been idle while waiting for Congress. They've been trying to force Amazon to turn over purchase records in North Carolina, attempting to force retailers to become tax-tattlers in California and Tennessee, and putting the squeeze on affiliate programs in Colorado.

Earlier this week, the Direct Marketing Association sued Colorado, saying its law requiring out-of-state retailers to turn over purchase history information is unconstitutional.

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first they steal movies-links.tv from me and now this mess. some places charge tax for the stuff i buy, and now you want to charge an extra tax. f that bull. also i order my pizza from online, because it is easier to get a visual of what i want and make changes before ordering, but they want to take that away also. :angry:

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I enjoy buying online without paying tax as much as anyone, but this bill makes sense to me. WHy should normal "brick and mortar" stores be forced to collect the tax and online retailers not be? That arrangement creates an unfair advantage for purely online retailers and it adds to the difficulty of "normal" retailers.

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I enjoy buying online without paying tax as much as anyone, but this bill makes sense to me. WHy should normal "brick and mortar" stores be forced to collect the tax and online retailers not be? That arrangement creates an unfair advantage for purely online retailers and it adds to the difficulty of "normal" retailers.

Who are they collecting tax for? What jurisdiction applies?

You are going to make a California retailer collect sales tax for the state of Georgia? That's never been done with catalog sales (as one example). The only difference between the internet and mail order is that the internet is easier so it's biting into revenues.

By the way, I'll still go to a brick and mortar store to get something I want to have today as opposed to waiting for it. It's not like they have no place. The bill is not to create a competitive advantage for brick and mortar stores -- if anything, requiring people to pay sales tax AND shipping will have the opposite effect -- it will disincentivize sales online. And for what? So government can recoup "lost" revenue? Color me unsympathetic.

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Who are they collecting tax for? What jurisdiction applies?

You are going to make a California retailer collect sales tax for the state of Georgia? That's never been done with catalog sales (as one example). The only difference between the internet and mail order is that the internet is easier so it's biting into revenues.

By the way, I'll still go to a brick and mortar store to get something I want to have today as opposed to waiting for it. It's not like they have no place. The bill is not to create a competitive advantage for brick and mortar stores -- if anything, requiring people to pay sales tax AND shipping will have the opposite effect -- it will disincentivize sales online. And for what? So government can recoup "lost" revenue? Color me unsympathetic.

Well, I see your point but the current situation is a de facto advantage for online retailers. Maybe "online" is just a business version of "natural selection", and it's bound to succeed due to the advantages it offers. But, IMO the brick and mortar stores need to have the field leveled up a bit. The online retailers can already provide goods at lower costs due to their ability to avoid hiring as many employees as the physical locations. But physical stores do provide employment for a very large number of people and I feel certain that online retailers have already had a negative effect on the employment numbers in conventional stores.

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Another reason I support the FairTax. The lack of taxes for online purchases hurts small businesses. Why would I buy a book at my local book store for $19.95 plus 7% sales tax when I can buy the same book without tax on Amazon for $15-$20?

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Another reason I support the FairTax. The lack of taxes for online purchases hurts small businesses. Why would I buy a book at my local book store for $19.95 plus 7% sales tax when I can buy the same book without tax on Amazon for $15-$20?

yea but with amazon you gotta pay shipping which could be from 3-6 bucks even for that 20 dollar book, plus small stores can sell their stuff through amazon or ebay. i just bought my text book from a store within amazon.

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first they steal movies-links.tv from me and now this mess. some places charge tax for the stuff i buy, and now you want to charge an extra tax. f that bull. also i order my pizza from online, because it is easier to get a visual of what i want and make changes before ordering, but they want to take that away also. :angry:

You should still be paying tax on that though since I would assume you are ordering in the same state.............

If you are not that is one **** of a delivery service :)

I do my pizza ordering online too..... so much faster.

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You should still be paying tax on that though since I would assume you are ordering in the same state.............

If you are not that is one **** of a delivery service :)

I do my pizza ordering online too..... so much faster.

i assume this is going to be an extra tax purely for online purchases. some states already have laws that make you pay taxes if you buy stuff online. i know cali is onee of them.

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i assume this is going to be an extra tax purely for online purchases. some states already have laws that make you pay taxes if you buy stuff online. i know cali is onee of them.

It's not intended to be an extra tax. Currently if you purchase something online from a company that DOES Have an office in your state, then the company is supposed to charge you sales tax. If the company you are buying from does not have an office in your state, then they do not charge you sales tax. THe proposed law would just make everybody pay "plain ole sales tax" on everything they purchase online.

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