July 3, 2009

States Plot New Path to Tax Online Retailers - WSJ.com

States Plot New Path to Tax Online Retailers - WSJ.com

A Supreme Court ruling now provides the upper hand for online retailers to avoid collecting and remitting state sales taxes unless they have a locus, or 'physical presence' in the state. I believe it's only a matter of time before this will change, either by Congressional action or by a case in which the Supreme Court will abandon its 'locus' precedent. The reason is simple: there's too much foregone tax revenue and it's growing. In this day of 'online everything' and excessive government spending the states are clamoring for this lost money. Consumers (voters), hopefully, will resist.

Consumers are legally obligated, at least in my home state, to report online purchases on their tax returns and pay the state sales tax rate. In practice, few do and enforcement is negligible or non-existent. Meanwhile, online retailers like Amazon and others continue to resist states' attempts to coerce them into collecting and paying these sales taxes.

"Amazon.com Inc. and other e-commerce companies are winning some skirmishes against cash-strapped states that want to force them to collect sales taxes, but their victories may be short-lived.

Several states are contemplating new laws or revisions to existing law that could eventually force online retailers to pony up. North Carolina, for instance, has a two-pronged approach to going after online retailers. If its current efforts to tax online sales fall through, the state's revenue secretary plans to interpret existing laws to require companies that have marketing affiliates collect sales taxes.

State Sen. David Hoyle on Thursday called the effort "a fairness issue." Collecting sales taxes from out-of-state sellers could bring between $150 million and $200 million annually in additional tax revenue, he said. Mr. Hoyle said current law allows the state to force online retailers retroactive sales taxes."

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