TommyRay Web Productions

        A 1992 Supreme Court decision ruled that retailers are exempt from collecting sales tax where they have no physical presence. The problem of requiring companies to comply with the various tax rules and regulations of 45 states and some 7500 different local taxing jurisdictions would burden interstate commerce. However, this ruling also stated Congress as having authority to change that policy.

There are 3 concerns of public policy:

1. It disadvantages local business.
    Online e-commerce has a 4 to 9 percent price advantage.

There are 2 Strategies to successful Internet Sales Taxation:

1. Persuade Congress it is no longer a burden to remote sellers due to software creations. For further simplification, as of July 2010 the Streamlined Tax Project had 44 states agreeing to a simplified and more aligned taxation and 24 states had taken steps to pass this legislation, including Wisconsin. Congress will then need to pass the Main Street Fairness Act.

2. Instead of relying on Congress, states are looking to clarify what the physical presence, or nexus, is defined as. As early as 2001, California became the first state to rule that a website was not a separate entity of a local retailer or national chain, but an online extension, and therefore subject to state sales tax laws. Several states followed suit. In 2003 most national chains cut a deal to be forgiven back taxes in exchange for willingly tax from that point forward. In 2008 New York further defined the nexus by taxing sales affiliates making 10k plus or retailers in state. Since then 6 more states, including Illinois, have followed the New York lead.

Where is Internet Taxation Today?

     Today the Marketplace Fairness Act has a newly revised submission by about a dozen Senators being processed for legislation. As reported in the LA Times on November 9th 2011, Senator Lamar Alexander (Tennessee Republican), along with Mike Enzi (Wyoming Republican) and Dick Durbin (Illinois Democrat) introduced federal legislation to enable states to more easily collect sales tax for online purchases made by their residents. They are among a group of 10 Senators co-sponsoring the Marketplace Fairness Act. It would give states the option to collect taxes from online retailers with annual sales above $500,000.00. Enzi says the current existing law, which requires consumers to voluntarily pay sales taxes for online purchases, cost state and local governments about $23 billion annually.

     Although conservatives and some companies like Amazon are giving approving nods, others such as eBay are opposing the proposed legislation. "This is another Internet Sales Tax bill that fails to protect small-business retailers using the Internet and will unbalance the playing field between giant retailers and small-business competitors. It does not make sense to expand Internet sales tax burdens on small businesses at a time when we want entrepeneur to create jobs and economic activity."; says Tod Cohen, eBays vice president for government relations.

     Opinion is that Amazon stands to profit heavily through the bill being touted by the likes of Mike Enzi. BabyAge.com CEO Jack Kiefer asks; “If my business is required to now pay taxes in all 50 states, would I then have the opportunity to vote in all states?” It is being analyzed that the overal valuation of web-only retailers could drop 25% and is attributed to: Near Term Revenue Dip, High Ticket Items being hit from freight costs, Collect Costs for these taxes and the Loss of Competitive Online Markets.

Sources:

http://www.newrules.org/retail/rules/internet-sales-tax-fairness
http://www.forbes.com/2008/11/13/online-taxes-revenue-tech-internet-cx_ew_1113tax.html
http://latimesblogs.latimes.com/money_co/2011/11/senators-think-theyve-solved-the-internet-sales-tax-problem.html
http://enzi.senate.gov/public/index.cfm/news-releases?ContentRecord_id=1736f196-00a6-42fa-887a-1c4bdb6a2f33
http://seekingalpha.com/article/298444-valuations-of-web-only-retailers-could-drop-25?source=from_friend