December 21, 2005 4:50 PM PST

Senators propose taxing Internet shopping

This may be the last holiday season to enjoy tax-free Internet shopping, thanks to new legislation in the U.S. Congress.

Two bills introduced Wednesday propose sweeping changes to how Americans are taxed for online and mail order purchases. Businesses initially would be required to collect sales taxes on purchases shipped to roughly half of the country, and that percentage is expected to rapidly increase.

"Main Street retailers collect sales taxes, while many online and catalog retailers are exempt from collecting the same taxes," said a statement published by Sen. Mike Enzi, a Wyoming Republican. "This is costing states and localities billions in lost revenue." (A related bill has been introduced by Sen. Byron Dorgan, a North Dakota Democrat, who is a former state tax commissioner.)

At the moment, if you order something from a company that's located entirely out of state, you're typically not charged sales tax. Seattle-based Amazon.com, for instance, does not collect sales taxes when shipping to California.

Technically, you're supposed to estimate and pay these taxes voluntarily to your home state every April 15. But practically nobody does.

State tax collectors would like to change that. They complain that the Internet is sapping tax revenues and are supporting Enzi's bill to force companies to collect taxes on many out-of-state shipments in the future. Traditional retailers such as Wal-Mart Stores, which collects taxes on shipments from Walmart.com because it has physical locations in every state, are also supporting the bill.

"It is now time for Congress to provide states...with the authority to require remote retailers to collect sales tax just as Main Street retailers do today," Enzi said. Four years ago, in a CNET News.com editorial, Enzi warned: "Other forms of taxes, such as property or income taxes, may then have to be increased to offset these lost revenues."

Critics of this approach warn that it will complicate life for small businesses and be an unfair burden on states like Delaware, Montana and New Hampshire, which do not have sales taxes.

"The tax commissioners are overreaching by pressing Congress for a national mandate on a collection scheme that is still in the oven," said Steve DelBianco, director of the NetChoice coalition, which represents companies such as America Online, eBay, Oracle, VeriSign and Yahoo. "They haven't worked out the software they need to collect, a compensation system for sellers, and the states themselves are still struggling (to put policies into place). In other words, there's a lot of work left to do before pressing Congress for a national mandate."

Tax "fairness and simplification"
Enzi's bill, called the Sales Tax Fairness and Simplification Act (click here for PDF), would affect only shipments sent to participating states. If California joined the so-called compact, for instance, the bill would require Amazon to collect sales taxes even if the state of Washington objected and did not sign up.

The legislation would apply only to businesses with more than $5 million in "gross remote taxable sales" each year.

So far, 18 states have fully signed on. Those include Arkansas, Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Nebraska, New Jersey, North Carolina, North Dakota, Ohio, Oklahoma, South Dakota, Tennessee, Utah, West Virginia and Wyoming. Twenty-two other states, including California, Illinois and Texas, have moved in this direction.

Dorgan's office did not make the second bill, which he also introduced Wednesday, immediately available. But a "discussion draft" seen by CNET News.com would order the Small Business Administration to determine which businesses would be required to comply with the tax collection rules. Congress would be required to ratify that decision.

For mandatory tax collection to take place on mail order and online purchases, the Supreme Court has said, Congress must act. A 1992 case, Quill v. North Dakota, said remote taxing--in the absence of a federal law--violated the U.S. Constitution's interstate commerce clause.

Earlier efforts in Congress to enact such a law have failed, in part because e-commerce companies pointed to the dizzying complexity of taxes. But the states participating in the so-called Streamlined Sales Tax Project hope that if they pledge to simplify their tax systems, they can persuade Congress to make collection mandatory.

28 comments

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sucks but should happen
I love shopping online, espcially on larger purchases that if I go to right site I dont have to pay taxes on...

But really its just a loophole that is unfair to traditonal retailers.....
Posted by Madrone (43 comments )
Reply Link Flag
Should NOT happen
A century ago my grandfather ordered a catalog through the mail from a business in another state. He then ordered items from the catalog and had them shipped directly to his home. The state he was in had absolutely NO say over this practice. (The U.S. constitution forbids states from controlling interstate commerce.)

A half century ago my father recieved a catalog in the U.S. mail (unsolicited) from a company not in his state. He ordered an item from it over the phone and had it shipped directly to his house. The state he was in had absolutely NO say over this practice. (The U.S. constitution forbids states from controlling interstate commerce.)

Many years ago I saw an advertisement on television for an item from a company not in my state (NO, it was not one of those "three easy payments of $19.99" deals.). I used the phone to place my order and had it shipped directly to my house. The state I was in had absolutely NO say over this practice. (The U.S. constitution forbids states from controlling interstate commerce.)

Today I shop for things over the internet and buy things from companies not in my state. I have them shipped directly to my home. Why does anyone NOW think my state should have say over this practice. Why should my state now be able to tax this practice?

Does not the U.S. Constitution still forbid states from controlling interstate commerce? A federal law attempting to allow this practice should still be unconstitutional.
Posted by shadowself (202 comments )
Link Flag
Tax on air.
It seems that the government taxes absolutely everything. Now I'm not opposed to taxes, its what paves our streets, lets our children go to school and keeps the system functioning. But when will enough be enough? You already pay taxes for the items you purchuse online, now they want you to pay taxes for purchusing an item via the net? Thats double the taxes. Soon they'll have you pay taxes for going to Sears, or even breathing air. (I know that goes a bit overboard, but isnt the government also?)
Posted by Kel_Solaar (5 comments )
Reply Link Flag
We already over taxed on everything else
why not spread the love to the internet.
Posted by unknown unknown (1951 comments )
Reply Link Flag
a Republican tax INCREASE
The Republican traitors are at it again. This time the liars are increasing taxes by taxing Internet sales.

Republican LIARS. Republican LIARS.
Posted by GrandpaN1947 (187 comments )
Reply Link Flag
Dorgan is a DEMOCRAT
Not republican!!!! From the fine state of ND that tried to bully Quill back in the 80's to pay taxes even though they didn't have any presence in the state.
Posted by Anon-Y-mous (124 comments )
Link Flag
You are nothing more than revenue
The States consider you nothing more than a source of revenue.

I consider it double-taxation to tax the sales of items with
money that has already been taxed (just for earning it). But the
states don't care -- they'd do much more if they could get away
with it.

What I think everyone needs to demand is some accountability.
Seems all they care about is raking in more of your money. I
wish I could just DEMAND more money from my boss with zero
accountability!!
Posted by m.meister (278 comments )
Reply Link Flag
Double taxation? Not hardly.
You're taxed when you earn it (income tax), you're taxed when you hold it (property tax, intangibles tax), you're taxed when you spend it (sales tax, user fees) and when you die they tax it all again (estate taxes).

Frankly, if the government combined all those taxes into a single source they'd face a new tax revolt as people came to realize just how heavily they're really taxed.
Posted by aabcdefghij987654321 (1721 comments )
Link Flag
internet sales tax
The "Sales Tax Fairness and Simplification Act" is anything but fair or simple. What is simple is the fact that if there is any way to get more money from the American public our elected (to serve the people) politicans will find it. Being on a fixed income, paying more for gas,medical & food each month we can not afford any more taxes of any kind.
These people will be remembered come election time!
Posted by easter39 (1 comment )
Reply Link Flag
I will remember
Yes. Come election time I will vote for anyone who does NOT support stupid ideas like this. I will most definitely NOT vote for anyone who supports this measure.

Within the next few days I will write each Senator and Representative and let them know this.

I suggest everyone else do to.
Posted by shadowself (202 comments )
Link Flag
It's all about the money...
I understand the need for taxes. Taxes pay for alot of things that we don't even think about, but when does it stop? When are they going to tax something that we, as a nation, will refuse to pay?
Posted by thedreaming (573 comments )
Reply Link Flag
Taxing is actually illegal.
Taxing america in any way is a rip off because the money is taken by politicians and used for anything but what it was intended for.
Posted by casper2004 (267 comments )
Reply Link Flag
Ship it to Delaware
Delaware has NO Sales tax, therefore would not be a "Member State". I'm ready to set up shop to send "gifts" to people who paid for them and had them sent to me to avoid sales tax.
Posted by Buddhaprince (2 comments )
Reply Link Flag
Boston Tea Party time
The citizens of boston held a nice little party, dumping tea into the harbor over much less of a tax than what we pay now. Up until WWII, taxes were a fraction of what they are now. When elections come around, what are the "issues" the politicans campaign on? It certainly isn't lowering taxes or the government spending less. They preach what the lobbyists want them to. That is where we need a change.
Posted by Seaspray0 (9714 comments )
Reply Link Flag
Welfare State
FDR turned the US into a Welfare State in WWII. Hence the huge increases in taxes and the total abrogation of the US Constitution aided and abetted by the activist Supreme Court.
Posted by ejryder3 (39 comments )
Link Flag
more taxes?
i cannot believe how many taxes we actually have to pay. is anything that we have actually ours and paid for? i mean come on enough is enough. we have to pay taxes to have a house and to have a piece of land and to have a license plate and to drive that vehicle and etc.... when will we actually own something of our own?
Posted by val31 (37 comments )
Link Flag
Offshoring... 3x tax with no benefit... and the "Main Street" problem
No wonder our corporations are moving jobs and all the means of production offshore... now it looks like our temporarily elected representitives are trying to push our on-line retailers there too! If this goes through, I'd be willing to bet that Amazon, Overstock and all the others go offshore shortly after. I know I would. The US is just not a friendly business environment any more. Not to mention, the complexities of implementing an accurate system to calculate and collect these taxes alone would cost justify the move... no matter how simplified these butthead congressmen promise it will be.

The corporations (online retailers) are currently taxed on their revenue, and we (the consumers) are taxed on our income (both federally and, for many, at the state and local level)... it seems to me that continued taxing of "the transaction" would be the third tax assessed... and if it is done under federal law... that means it's under federal jurisdiction and control. Dang, for a republican administration and republican congress, it sure sounds like we are centralizing this control.

Finally, the internet (and incentives to buy via the internet, such as no sales taxes) is actually good for the small business or "Main Street" retailer. Basically it is one of the few remaining equalizers and ways for SMB's to compete against the big box, high volume retailers (how much is your TV at Wal-Mart or Circuit City vs. your local TV shop... in fact, are there any local TV shops left?) It is just as easy for the local TV shop to put together an online store (and trust me, it can EASILY be done)... do a little marketing and suddnely they are competitive again (and surviving to pay their taxes). Charging sales taxes for those online transactions would actually put them right back where they were... dying.
Posted by Source00 (12 comments )
Reply Link Flag
In case you haven't noticed
the current REPUBLICAN administration is being very avid about abrogating all of our constitutional rights and centralizing all power and authority. Can you say fascism?
Posted by Michael Grogan (308 comments )
Link Flag
Sales tax, not "purchase" tax
At the risk of applying common sense to politics, I would point out
that a "sales" tax is literally a tax on goods sold, which ought to
mean that a state has no right to collect that tax from an out-of-
state seller. If a state want to enact a purchase tax that it can force
its residents to pay on all purchases, regardless of where they
occur, that is an entirely different matter.
Posted by bfohwrd (3 comments )
Reply Link Flag
Who's side are they on anyway?
Senators should be on our side, voters, right?
So why are they trying to spoil one thing that makes internet so
nice?
Posted by Goose (93 comments )
Reply Link Flag
Technically, we should all antie up
Technically, it is use tax that should be paid to your home state. Paying use tax is not voluntary. Ask any businessman who has gone through a state audit lately.
Posted by hkillham (1 comment )
Reply Link Flag
 

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