Internet Sales Tax Update

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Readers of AQUA will remember coverage earlier this year of efforts in the U.S. Congress to craft a bill which would require online retailers to charge sales tax just as brick-and-mortar retailers do.

The Senate version of the bill, dubbed the Marketplace Fairness Act, passed easily in May. The bill has since taken up long-term residence in the House, where there is no guarantee it will make it to a vote. 

Supporters say it is needed out of fairness to traditional retail stores whose products appear more expensive to customers because these retailers have to add sales tax to the bill. However, some lawmakers oppose the bill on anti-tax grounds, and others are loath to create more regulation and accounting burdens. The debate is ongoing.

Yesterday, the Supreme Court refused to hear an appeal filed by Amazon.com and Overstock.com in their fight against a New York law which essentially accomplishes on the state level what the U.S. Congress is considering on a federal level — that is, enforced collection of state sales tax on Internet purchases.

This could encourage other states — in search of tax revenues to ease budget problems in a weak economy — to take the same approach. The National Council of State Legislatures estimates that every year $23 billion in sales tax goes uncollected on Internet purchases.

Currently, according to a Wall Street Journal article, some Internet retailers charge sales tax on purchases from states where they have a physical presence such as headquarters or a warehouse. For example, Overstock.com collects sales tax on purchases that come from Utah, where it is based.

One of the legal issues being fought out on the state level is what constitutes a physical presence — is that just buildings the Internet retail company owns? Or does it include buildings owned by affiliates that manufacture and warehouse goods for shipment.

The issue remains in flux. Currently, sales tax is being collected on some Internet purchases, often depending on the state residency of the buyer. 

A law creating a national policy awaits action in the U.S. House of Representatives.

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