Congress is once again considering legislation that would force online retailers to collect sales tax for all purchases. The Main Street Fairness Act, introduced by U.S. Rep. William Delahunt, would change the current law, which only requires sales tax be charged on purchases when the retailer has a physical presence in the state.
Many states already require consumers to report online purchases when they file their taxes and remit the sales tax if the retailer does not collect it, but a many, if not most, consumers either do not know they are required to make these payments or fail to mention their online purchases on their state tax forms.
The Main Street Fairness act claims that charging sales tax for online purchases will bring fairness back to small local businesses that are required to collect sales tax and thus charge consumers more at checkout. Various technology groups are opposing the online sales tax push, claiming that instead of helping small local businesses, the Main Street Fairness act would become a burden to small businesses that sell online and other online entrepreneurs.
Past state level attempts to collect sales tax from online retailers like Amazon.com have been met with resistance including lawsuits and the closure of the company's third-party affiliate program. When North Carolina attempted to figure out what state residents owed in sales tax for online purchases through Amazon they requested data about purchases, which both Amazon and the ACLU fought. Attempts by cash-strapped state to declare affiliates, individuals who make money when a web visitor clicks a link to Amazon, as a physical presence and thus taxed to Amazon backfired. Amazon simply shut down its affiliate programs in those states.
As my colleague Tom Barlow explored here last year, the online sales tax question will continue to pose a conundrum, as cities and states continue to scrape for cash.
If the Main Street Fairness Act were to pass and become law, there still would not be a uniform online tax code since it would only collect tax in the 20 states that have agreed to the Streamlined Sales and Use Tax Agreement, which as the name implies, streamlines the process of collecting sales tax from residents of different cities, counties and states. There are other states in the process of joining, but even with their additions there will be less than half of the states as members.
Acts like this tend to come about once or twice a year and result in little if any change in online sales tax code. A similar bill introduced last year never made it into the tax code so you don't need to log on and make large online purchases today.
But tomorrow, maybe. There's just too much money in them there shopping carts for government to ignore.
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