Web Sales Tax Debate Flares Again
Think that the Internet Tax Freedom Act stands in the way of collecting sales taxes on Web-purchased items? Think again. Some states are now getting serious about Internet sales taxes.
Mon, April 19, 2010
CIO — Would you prefer to save $40 a year in sales tax on purchases you made on the Web, or watch your house burn down when the fire department takes 30 minutes to get there? That may sound like hyperbole, but for Internet shoppers in California and other hard-pressed states it's a real issue. Cities and states are losing billions of dollars annually in lost sales taxes, local merchants are being squeezed out of business and all of us are seeing the erosion of government services we once took for granted.
You can't blame all of that on Internet merchants who don't collect sales tax, of course. But as buyers flock to the Internet for convenience, and to avoid paying sales taxes that are approaching 10 percent in some areas, an important source of revenue is going untapped.
The amount is staggering. Uncollected use taxes (a use tax is pretty much the equivalent of a sales tax) for the six-year period ending in 2012 will range from $52 billion to $56 billion nationally, according to a 2009 study by economists at the University of Tennessee. New York City alone will lose at least $390.6 million in 2012; Chicago $229 million, they predict.
That huge black hole hasn't gone unnoticed, and a number of states, including North Carolina, New York, Colorado and Rhode Island, are actively working to change the rules. More states are considering similar action, and don't think the Internet Tax Freedom Act forbids that—it doesn't.
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On the other side are the big Internet retailers, such as Amazon, which has fought hard to maintain a status quo that gives them a marked advantage over local brick-and-mortar merchants. Amazon, the largest and best known Web retailer, has fought efforts to collect sales tax from customers. The company argues that the crazy quilt of taxing jurisdictions—there are approximately 8,500 in the U.S.—makes that impractical.
I don't buy it. An industry that can deliver tailored ads to buyers in a fraction of a second could surely solve whatever technical problems exist. Indeed, Reed Hastings, the chief executive of Netflix, told the New York Times that, "We collect and provide to each of the states the correct sales tax. There are vendors that specialize in this (we use Vertex). It's not very hard."
