Do We Need An Internet Sales Tax?

By Joe Waynick

The possibility of implementing an Internet sales tax is once again a hot topic as more states face staggering budget deficits.

My objective in this series is to try to bring clarity to what is rapidly developing into a national showdown between the largest online retailer in the world and the 50 United Sates.

The outcome of this battle can have a profound effect on millions of Internet booksellers.

Already, tens of thousands of booksellers have seen their income slashed from making Amazon collect sales taxes. No such thing as free taxes, right? If you think it can’t happen to you then you’d better think again.

But can clarity be achieved for such an emotionally charged subject? Forget politics and religion. If you really want to start a barroom brawl just ask your drinking buddy if Amazon should collect the nexus sales tax on its Internet sales. Duck!

What’s The Brouhaha All About?

Every day millions of consumers order products from mail order catalogs and online retailers from out of state companies to avoid paying Internet sales tax on their purchases.

Many states view those sales as billions of dollars in potential revenue and they would love to grab a piece of the action. However, a little thing called Article I of the U.S. Constitution (affectionately known as the Commerce Clause) keeps the tax collector at bay much to the delight of the buying public.

The Commerce Clause authorizes the federal government “To regulate commerce with foreign Nations, and among the several States, and with the Indian Tribes.”

But a constitutional prohibition against collecting sales taxes from out-of-state companies doesn’t stop state legislatures from trying.

Therefore, in 1989 the North Dakota Tax Commissioner levied a use tax on the Quill Corporation, a seller of office supplies and equipment through catalogs and magazines, on products shipped into the state. This was done even though Quill had no physical presence in North Dakota whatsoever.

Quill Corp. v. North Dakota

Needless to say, the Quill Corporation was unhappy with the state of North Dakota and they sued. After a lower court upheld the tax, Quill appealed to the U.S. Supreme Court and won.

Thus the precedent was set for the next 20 years for interstate commerce to flow uninhibited by the obligation of merchants to collect an Internet sales tax; giving out-of-state retailers a significant competitive advantage over local merchants.

Enter The Internet

Around the same time the Supreme Court was making its landmark decision in favor of mail order catalog companies, a technological revolution was taking shape.

Retailers were discovering the vast wealth that could be made through Internet eCommerce. In 1994 tiny made its debut; destined to become the 800 pound gorilla of online retailers.

By the turn of the century billions of dollars were exchanging hands via this new technological marvel, and states once again began licking their chops at the thought of a new revenue stream through an Internet sales tax. Aren't politicians clever?

At the heart of the controversy are several states claiming there’s an Amazon nexus that gives them the right to impose the Amazon Sales Tax collection requirement. However, like the Quill Corporation, Amazon is not giving up without a fight.

For one thing, Internet companies claim that it would be financially burdensome to create a sales tax calculator for all 50 states. But politicians aren't buying that argument.

What’s The Next Move?

The stage is set for an epic battle between the future giant Internet retailer and cash strapped state governments across America with ramifications for us all.

The lure of the eCommerce sales tax was simply too powerful.

Tensions between Amazon and states over the Internet sales tax have become so tense that grass roots organizations have sprung up to mount a “boycott Amazon” campaign in an attempt to pressure them into compliance.

It’s going to be a fascinating struggle to say the least, especially for other Internet booksellers like Barns and Noble; who plans to collect the tax.

Considering the fact that recently Amazon settled the Texas tax dispute it seems the handwriting is on the wall. Stay tuned for the next installment in this series.

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