If state legislatures get their way, a long-discussed online sales tax may soon come to fruition, much to the dismay of online retailers. A bill is expected to be introduced in Congress as early as Monday that would propose new tax rules for Internet and mail order sales, according to ZDNet.
Internet shoppers who buy from out-of-state companies aren’t always required to pay sales tax at the time of purchase, under current law. They are, however, required to pay their own state’s sales tax rate, known as a “use tax,” on such transactions when they file their state income taxes.
States legislatures are fully aware that consumers aren’t paying those taxes every April 15, according to BusinessWeek, which is why the National Conference of State Legislatures, among others, is pushing for the new law. Adding fuel to the fire, the Nelson A. Rockefeller Institute of Government just issued a report saying the 6.1% decline in 2008 state and local sales taxes was the greatest in the 50 years for which quarterly data is available, and that the opening months of 2009 indicate an overall decline of more than 12%.
Online retailers point to the complexity of state laws as a major hurdle if the new legislation is passed. Leading the counter-charge is the Streamlined Sales Tax Project, which is attempting to bring order to convoluted tax laws.
The National Retail Federation (NRF) supports the idea of an Internet sales tax. eBay, L.L. Bean, and Overstock.com, among others, don’t. I’m with the NRF on this one.
Not having to charge tax on their products, online retailers hold a significant advantage over brick-and-mortar retailers who must. Earlier efforts to pass an online sales tax failed because of the aforementioned state tax law complexities, something that can certainly be remedied if the state legislatures and federal government get their act together. Granted, that’s a very big if.
But the concept of Internet sales tax is more than fair. Online retailers shouldn’t be able to blame state legislatures for the free ride they’ve been getting at the expense of other retailers.