Sales tax on online purchases hot topic again

Published: Saturday, Jan. 17, 2009 11:52 p.m. MST
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It has been exactly five years this month since my last column on efforts to charge sales tax on Internet retail purchases. And that column came five years after the last one.

That just proves what I've learned over more than a quarter-century in this business. A lot of issues never get resolved. They reappear whenever circumstances make them convenient, or when government is in need of money. That is especially true in this case.

A decade ago, Internet shopping was a novelty sprouting wings. State and local governments looked at the figures, projected them out and said that by 2003, governments nationwide would be losing a combined $4 billion in potential sales tax receipts. This was because, unlike with a store you can actually walk into, online stores didn't have to charge sales tax. In fact, Congress had passed a ban on taxing Internet access, and it refused to require merchants to collect sales taxes. One proponent of that policy, Sen. John McCain, argued that the Internet was "the greatest engine of economic growth in our time" and said taxing it would choke it off.

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But by 2003 the economy was humming, and people forgot about the problem. It came up again in 2004, just because Congress had to renew the ban on Internet access. But it is still in place today. And Internet sales didn't quite explode the way local governments envisioned. The Census Bureau reports that third-quarter Internet retail sales in 2008 totaled $34.4 billion, which was 3.4 percent of total retail sales. That's about the same as figures from a year earlier.

But now we're in a recession. State and local governments face deficits. Suddenly all those old arguments about fairness are resurfacing. If governments could force online retailers to charge sales tax every time someone bought something with a mouse click, states could collect billions.

Some are urging Congress to make it clear states can require sales taxes on purchases their own residents make on the Internet, even if they buy from a place that has no physical presence in their state. That would go against a Supreme Court ruling 17 years ago that allows states to tax Internet sales only if the business actually operates in that state.

New York is the first to get aggressive about it, passing a law that says you have a physical presence even if you only put ads on any Web site operating from within the state that links to your store.

As a result, Amazon.com and Utah-based Overstock.com are suing New York.

Recent comments

Please don't give the wacko's any ideas.

If I hear about the...

To itsjustme @ 6:01 | Jan. 18, 2009 at 7:58 p.m.

I was with you, utah rose, until you wanted to tax diapers and add to...

re utah rose | Jan. 18, 2009 at 6:37 p.m.

If governments could figure out a way, I'm sure they would place a...

itsjustme | Jan. 18, 2009 at 6:01 p.m.

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