Online vs. Main Street Tax Debate Continues


The dispute over collection of online sales taxes is not a new one. The Alliance for Main Street Fairness argues that online-only retailers have a distinct advantage, but the author offers that convenience (not avoiding sales taxes) drives the buying decisions for many. TechJournal South offers analysis:

Federal law currently requires retailers to collect sales taxes in states where they have a nexus (a physical presence such as a store, warehouse or other facilities). Since Internet-only retailers do not have a nexus in most states, they are not currently required to collect the taxes.

Other states wrestling with the problem include Arkansas, California, Florida, Illinois, Indiana, Minnesota, New Jersey, Pennsylvania, Tennessee and Texas. The National Conference of State Legislatures says states lost about $8.6 billion in 2010 in failing to collect sales tax from online and catalog sales. The number is projected to be approximately $37 billion from 2009 to 2012.

Personally, we can see how buying a big ticket item from an online retailer might save a significant pieces of change, but even there, we doubt that most people buy online just so they won’t have to pay sales taxes. We buy online because it is convenient. We can do our shopping from our desks, which has inherent advantages that will not disappear when online retailers collect sales taxes.

We shop online because we often find a much wider selection available at the lowest possible prices online, whether we are looking for a book, a camera, or a refrigerator. We save gas and wear and tear on our vehicles and ourselves. But we have never bought an item online to avoid paying a sales tax.

Sooner or later, we suspect, this problem will be resolved through legal means that require online retailers to collect state sales taxes. That’s fine with us, although we think states threatening to collect years of back taxes are certainly wrong-headed as well as on legally shaky ground.

In the meantime, the way states and the online retailers are going about dealing with the problem is just causing more problems: such as Amazon dismissing its associates in North Carolina and other states attempting to use their status to say the reatailer has the physical presence in the state to create a nexus.

That move causes grief for many online startup businesses. Some larger ones actually left North Carolina when Amazon fired its state associates, and others complain it makes it harder to get that early revenue necessary to achieve outside growth funding.

Amazon is not helping matters by negotiating not to pay sales taxes even in states such as Texas, Indiana, Nevada and Tennessee where they have distribution centers.

The whole mess will likely require action on the part of the US Congress.  “The Main Street Fairness Act,” H.R. 5660 was introduced in the US House in July 2010, and it would behoove Congress to vote on the bill.