Days Of Tax-Free Internet Shopping May Soon Be A Thing Of The Past

By: EW News Desk Team   Date: 10 November 2011

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10 November 2011

A group of bipartisan senators in the United States is pushing forward an online sales tax bill, which could spell an abrupt end to tax-free internet shopping.

On Wednesday, a group of Republican and Democratic senators jointly introduced a bill, dubbed the Marketplace Fairness Act, which would give states the authority to collect internet sales tax from all out-of-state retailers. Online retailers with less than $500,000 in annual sales would be exempted.

The bill addresses a legal loophole, created by Supreme Court decisions predating the Internet, which allows online retailers to avoid paying state sales taxes that brick-and-mortar stores must remit. As online sales soared at the expense of traditional retailers, states and cities have missed out on billions in tax revenues.

“We are not creating any new taxes in this bill,” Senator Dick Durbin said. “It's a mechanism to collect taxes that are already on the books.”

The legal loophole in question was created by a 1992 Supreme Court ruling, Quill Corp. v. North Dakota, in which the court struck down a sales tax that the state of North Dakota had imposed on Quill Corporation, the nation’s largest mail-order office supplier, based in Illinois. Although the decision did not apply at all to e-commerce, lawyers for major online retailers were happy to use that decision as a way to avoid paying sales taxes.

With the exception of Amazon, the largest online retailer in the world, cybermerchants like eBay have criticized the bill.

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, said Tod Cohen, vice president for government relations and deputy general counsel at eBay, in a statement.

"It does not make sense to expand Internet sales tax burdens on small businesses at a time when we want entrepreneurs to create jobs and economic activity."

But the idea of solving this tax problem once and for all is gaining momentum in Congress, where members are also being pushed by cash-starved states to do something to help them raise revenues.

According to a press release by the Washington State Department of Revenue, the “Department estimates that the Washington state only collects sales tax on about half of online and mail order sales due to a 1992 U.S. Supreme Court decision.”

Related: US Online Tax
Related: Tax Information, Details About Tax Rule And Regulation

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