The Internet Sales Tax Debate Continues

Marketplace Fairness Act Announcement

by John Sealander  

Is an Internet Sales Tax a Solution to a Problem That Doesn’t Exist?

With a stagnant economy and declining revenues, national, state, and even local governments are actively looking for new sources of income to fund government operations. One of the first places legislators look is the Internet. Although online shopping is still in its infancy, its growth has been nothing short of spectacular. The Bureau of the Census estimated there were $4.1 trillion in retail and wholesale transactions conducted over the Internet in 2010 and now everyone wants a piece of this pie.

Government entities at every level see online sales as an enormous new source of potential revenue. As their efforts to enact legislation to tax this new revenue stream increase, they have mounted a massive PR campaign to convince their constituents that taxing online businesses will level the playing field and offer significant benefits to traditional “brick and mortar” businesses in their districts. Large retailers like Walmart have jumped on this online taxation bandwagon, because they already have to charge tales tax on their online transactions anyway, largely as a result of having a physical presence in almost every state.

The Effect on Small Online Business

It’s a completely different story for smaller online retailers. The so-called Marketplace Fairness Act could be devastating for these businesses. The Marketplace Fairness Act represents a radical departure from existing tax law. If this legislation were to become law, individual states could begin to collect sales taxes on transactions that take place outside their borders. This is a significant expansion of current state taxing authority and is fundamentally unfair to smaller businesses.

83% of online sales currently come from “Big Box” retailers like Walmart, Best Buy, and Amazon. These companies already have a physical presence in most states and do collect sales tax on Internet sales. That’s why even though large retailers generally support the concept of an online sales tax; it could still hurt thousands of start-ups and smaller retailers.

These small businesses and an increasing number of their legislators now think that it would be an administrative nightmare for smaller business to comply with complex online sales tax laws, since each state and municipality can make their own rules. With thousands of different tax jurisdictions, each imposing their own tax rate, it could be extremely difficult for sellers to deal with a different set of rules for every out-of-state buyer.

Will The Marketplace Fairness Act Pass?

It is becoming increasingly clear that an Internet Sales Tax may be a solution to a problem that doesn’t even exist. After thirteen years of shopping online, these purchases still only represent 6% of total retail sales. In most jurisdictions, the traditional sales tax base is still solid.

Despite strong bipartisan support in congress, the Marketplace Fairness Act still faces a number of significant hurdles. The biggest of these hurdles is that an increasing number of people now believe that empowering states to collect sales taxes on transactions outside their own borders represents a radical departure from current tax policies and is fundamentally unfair. Rep. Morgan Griffith and Speaker John Boehner both predict that the Marketplace Fairness Act will not pass on the House floor.

With online sales continuing to grow at an astounding 16% a year, online taxation is not an issue that is going away soon. State and local governments still want a share of this lucrative pie. The real question now is whether it is fair to collect taxes to pay for local and state governments from a national audience. The jury is still out on this fundamental question.

About Gevril Group

Gevril GroupGevril Group is the exclusive US representative for select European watch brands, distributing and servicing luxury, fashion and sports timepieces at a wide range of price points. Gevril Group also operates a full-service watch repair department staffed by master Swiss watchmakers. Contact Gevril Group by email or by calling 845-425-9882.

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2 Responses to The Internet Sales Tax Debate Continues

  1. Mahmoud El-Darwish says:

    1) The Internet is virtual and intangible and thus is not ‘real’ by any traditional definition legal or semantic.
    2) The cost of the public Internet (formerly known as the NII) is paid for by subscribers- ie, customers. That is NOT the case with B&M retail.
    3) The Internet is a macro cosmic externalized model of the human network. In other word, the traffic belongs to all the users in aggregate.
    4) Net Neutrality requires that the self-governing Internet be respected as the first universally democratic forum.

    If you agree, then we can make this statement: In no manner shall a virtual and intangible paradigm that engages in commerce, be taxed so as to finance an archaic and obsolete physical entity.

    To do so would be the equivalent of taxing every individual for engaging in conversation with another person so as to justify a public meeting space.

    If the Western Governments push Internet taxes either overtly or by means of subterfuge; we shall flee the US based Internet and forge a tax free one with money from Asia+Arabia. And the new Internet will not be “bugged” by the NSA either 😉

  2. Larry GV says:

    I don’t think this is about taxing the Internet. It’s about taxing sales, which is a longstanding practice in many American states.

    The question posed is, “If people are taxed on purchases at physical stores in their locality, why shouldn’t they also be taxed in online stores?”

    There doesn’t seem to be a clear-cut answer, but ultimately, it will we answered by the U.S. government and local taxing bodies.

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