For many years, online retailers have enjoyed the competitive advantage of avoiding state sales tax. However, as lawmakers in state capitals scrape the bottoms of their funding barrels, more and more are looking at taxing web transactions as a revenue stream whose time has come.
Daniel Indiviglio, writing in The Atlantic, says that states are losing about $7 billion in revenue annually. Others say the total could be as high as $23 billion. "At a time when numerous states teeter on insolvency due to budgetary woes, they're ignoring a pile of money sitting right in front of them," Indiviglio says. He thinks that it is just a matter of logistics and time before online sales are taxed as heavily as their brick and mortar brethren are.
A key issue is that of "physical presence." The Supreme Court ruled in its 1992 Quill v. North Dakota decision that an Internet retailer could be taxed if it had a physical presence in the purchaser's state. New York used that ruling to tax Amazon sales in a 2008 law, arguing that Amazon affiliate retailers in New York constituted such a presence. Rhode Island and North Carolina followed New York's lead, prompting Amazon to sue New York and drop its affiliates in the smaller states.
Thirteen more states are moving forward with similar efforts to collect sales taxes, from Hawaii to Massachusetts, with Illinois as the most recent. Some pundits, such as Internet, IP and software lawyer Chip Cooper, argue that the current sales tax war involving Amazon may affect all ecommerce websites. The battle lines are still forming, but the conflict promises ramifications that will reverberate around the Republic.
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