Taxing Online Sales

Monday, November 29, 2010 - 8:52am

Billions in cyber-sales aren't subjected to sales tax, but that could be changing.

After storming the stores on "Black Friday" holiday shoppers will be hitting the computer keyboards and smart phones today for "Cyber Monday".

One market research firm estimates online holiday spending could jump 11 percent this year to $32.4 billion.

The vast majority of those online sales though, come without sales tax attached.

It's a situation that could be changing.

A 1992 U.S. Supreme Court ruling shields online retailers from collecting sales tax unless they have a physical presence in the customer's state.

It's a legal loophole the National Retail Federation is trying to close.

"The money at stake is upwards of $23 billion or more, and some estimates are as high as $40 billion," says federation's Maureen Riehl.

Many cash-strapped states are anxious for what they see as their share of those potential tax dollars each year.

North Carolina and Texas are among the states that have gone to court over the matter.

"Right now, states are looking under the couch cushions for every cent they can find. The importance is that we not let states harm the national economy as they do this," says the Tax Foundation's Joe Henchman.

The non partisan Tax Foundation contends the myriad of state and local tax codes makes collecting internet sales taxes problematic.

"We're dealing with thousands, at last count, something like 8,000 different sales taxes and different states will exempt different things," Henchman explains.

24 states have streamlined their sales tax codes since 2005 and legislation currently in the U.S. House would allow those states to require online retailers to collect sales tax on their behalf.

"It makes no sense to us in retail that we shouldn't find a way to help states collect a tax that's already owed to them," Riehl argues.

Convincing online retailers of that may literally take an act of Congress.

Online shopping accounts for about 7 percent of the total holiday shopping pie, which
Is estimated to be about $447.1 billion this year.


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