Update: The Latest on the Internet Sales Tax

Talks of an online sales tax continue to hold the attention of online merchants across the country. Continue reading for the latest developments on this iron-hot issue.

If you’ve been wondering about the internet sales tax, you’re not alone. As we embark on another election cycle, there hasn’t been much talk of the issue on a Federal level, as many politicians are being careful with what issues they promote.

On the other hand, state governments and the business sector are tackling the issue head on.

For a recap, 2011 was full of debate regarding the Main Street Fairness Act, which would require online merchants to collect taxes on all transactions, including purchases made from customers living in another state. Currently, online retailers are required to collect sales tax from customers in states where the retailer has a physical presence (store, warehouse, etc.). For all other sales, the consumer is supposed to pay taxes directly to their state government, but this rarely happens.

Physical retailers argue that the current landscape creates an unequal playing field with their online counterparts, as retail storeowners are required to pay sales tax on every sale. And as states continue to face budget shortfalls, it becomes clear why more and more of them are aggressively pushing for an internet sales tax.

So far in 2012, the most movement on this issue has indeed been made on the state level. For example, Virginia recently signed their Tax Fairness Bill into law, requiring out-of-state sellers with distribution or other facilities in Virginia to collect sales tax on goods sold to Virginia residents. Similar legislation has been passed in California, Pennsylvania, Indiana and Tennessee. Even more, New Jersey, Georgia, Michigan and Florida are debating the idea, and several other states are swinging in that direction.

The main target in this debate is ecommerce giant, Amazon. Since Amazon is one of the biggest players in the ecommerce industry, the company has the most potential to feed tax dollars back into state budgets. In fact, Arizona slapped the company with a $53 million bill for unpaid sales tax over the past five years.

While the debate continues to rage in state capitals, additional action is taking place in the business sector, namely with some of its biggest players. For example, Wal-Mart, Target, Best Buy, Home Depot and Sears are pouring dollars into a group called the Alliance for Main Street Fairness, an organization that lobbies for the passage of an online sales tax.

Some may wonder why these corporations are spending so much money on this issue, but the motivation is simple: Amazon is eating into retail market share, and if they have to collect sales tax on millions of transactions, it takes away a big competitive advantage.

An interesting development took place when Amazon publicly advocated the latest piece of Federal legislation, the Marketplace Fairness Act. Introduced in November 2011, this bill exempts all online retailers who make less than $500,000 a year in total remote (out of state) sales. Many think that Amazon’s support of this bill is mostly a PR move and an acceptance of the inevitable. As Amazon is required to collect tax in more and more states, it foresees having to do so across all states that collect sales tax, and is now supporting the bill to put pressure on rivals like eBay and Overstock. Others believe the support comes from another opportunity for Amazon to collect more money.

Despite the hullabaloo, don’t expect much movement on this issue for the rest of 2012. Although some politicians may verbally support the cause as a way to appeal to small businesses and voters advocating deficit reduction, hardly anyone will spearhead its progression through Congress.

And even though an online sales tax might be intended to level the playing field between retail and online merchants, those who will be most affected are consumers – they’ll be the ones required to pay more for their online purchases.

Perhaps when taxpayers realize this truth, we’ll start to see a livelier debate.


-Matt Winn, Social Media Manager, Volusion


Matt Winn is Volusion’s Senior Brand Manager, where he helps oversee the organization’s branding and communications efforts. Matt has created hundreds of articles, videos and seminars on all things ecommerce, ranging from online marketing to web design and customer experience. Beyond being a certified nerd, Matt is an avid college football fan, enthusiastic home cook and a self-admitted reality TV junkie.

18 Responses to “Update: The Latest on the Internet Sales Tax”

  1. Peter

    Good enough reason to quit selling on Amazon and encourage everyone else to boycott them before they monopolize the entire internet. Even those sellers who sell a lot on Amazon do so at virtually zero margin.

    Now, the bastards have given us a good reason to stop doing business with them altogether.

  2. Dave

    Yes! Please update this. How will Volusion respond for us (Volusion customers)?

  3. Chris

    Time to readdress this blog post, as it looks like we are going to be screwed.

  4. Steve

    With the “Marketplace Fairness” act gaining popularity, I’m hoping that Volusion has something in place to allow their customers to comply? We do over 1M with our Volusion store and therefore would have to charge taxes if this thing passes.

  5. Val

    As both a brick and mortar and online retailer I can tell you that sales tax hurts online retailers far more than brick and mortar. I consider sales tax a “convenience” fee. Many brick and mortar buyers are willing to pay the tax because of the immediate need for the item. Whereas my online clients are willing to wait in exchange for savings on taxes.

    I think the bigger issue is who is behind this bill, and what their real motives are. Am I the only one who sees the Irony in Wal-Mart, Home Depot, Best buy, and probably a laundry list of other big box retailers concerned about “Main street fairness”? That’s pretty laughable if you ask me. Many of these big boxes have single handedly sent the mom and pops packing, and in some cases shut down small towns all over this country changing mainstreet forever. The true mainstreet now is the e-tailer who is more in tune with their consumers needs by listening and adjusting their business to the individuality of their clients.

    So, now that Mr. Big Box doesn’t like e-tailers chipping away at their profits and since they operate in every state they sell in requiring them to charge sales tax on online orders they feel it’s unfair? Is that not the world they wanted? Personally love the irony of it all and I’m sure in all their infinite wisdom about market share and driving out the competition they didn’t forecast for the shift in consumers buying habits.

    This is a dangerous time for e-tailers as every politician is looking for that silver bullet to fudge their number on their state budget deficit. It seems that Mr. Bigbox is going to try a seize that opportunity and has deep enough pockets to fulfill their destiny. I only hope consumers get smart and vote it out of their state because Mr. Big Box is no longer their “mainstreet”. “Mainstreet” is the creative or convenient e-tailer who listens to their clients needs.

    Stand Up people! Mr. Big Box stole all the mainstreet kids candy on the playground, and now he’s going after your lunch money with the principal in hand!

  6. Cedar

    Good article, thank you for raising the issue. Although I prefer to keep things as they are, I don’t see how that can last, there’s just too much money at stake for the states to not try and grab “their share”. As a nation we need to come up with a workable solution, otherwise the individual states will continue trying to figure it out on their own. This will result in more and more legislation creating more and more rules that will eventually become impossible to follow because of their complexity. And of course these new rules will have the most impact on small and medium size businesses, the ones that can’t afford the infrastructure required to comply with 7,500 individual tax jurisdictions. It’s bad enough just trying to comply with the complex situation in California, with its myriad taxing districts.

  7. Keith

    I disagree with Channa I sell both online and in a brick and mortar store. I am constantly asked by local customer if they have to pay sales tax if they order from my web site. I lose a lot of sales to local customer because of sales tax. Shipping charges in my industry at least, seldom equal the sales tax I am required to charge local customers. For example I have one product that is map priced at $759 everyone ships it for free as the margins are high enough. I sell quite a few of them online I have never sold one locally because of the extra $57 a local customer has to pay. It cost about $12 UPS ground to ship. A $45 dollar difference between sales tax and shipping cost. Order 2 and the customers saves $114 by ordering online. Which would you do?

  8. Stephanie

    We are TAXED TO DEATH in this country! I hope the word gets out to the public and we’ll start to hear their voices to help to stop this senseless taxing.

  9. Matt

    Sounds like big companies once again trying to limit the ideas of capitalism by throwing regulatory handcuffs on their competitors.

  10. Channa

    Forcing online merchants to collect and consumers to pay tax on online sales DOESN’T level the playing field for Mainstreet merchants. As it stands now, online orders have shipping costs that are associated with them where local purchases do not. So from the consumer’s point of view, they pay one OR the other. And most of the time the amounts are somewhat comparable. If online merchants have to charge/collect sales tax, it will PROMOTE local shopping, because then the total cost of goods to the consumer will be less if they only have to pay sales tax vs. having to pay sales tax AND shipping. So it’s not about making things more fair for “main street merchants” (who could sell their wares online easy enough if they’d open a Volusion store, by the way!). This issue is REALLY about the state govts wanting a piece of the online ecommerce pie.

    • Matt

      Hi Channa, your raise an excellent point about shipping costs, especially as fuel prices have seen an increase and online shoppers are becoming more accustomed to receiving free shipping options. There’s already pressure to cut into margins because of shipping costs, and this might be exacerbated with the passage of an online sales tax. This is definitely something to keep an eye on. Thanks for commenting! -Matt

  11. Rob

    I don’t have a problem collecting tax on all transactions, but what I do have a problem with is registering in 50 States, keeping track of countless tax rates and rules — within California alone there are numerous tax rates depending on the city, county, etc. If they can come up with a harmonized tax system for the country, fine. Until then, let me run by business, and don’t over burden me with a tangled mess of sales tax administration.

    • Matt

      Hi Rob, I think that the registration piece is going to be the biggest impact or online merchants. You also raise a great point regarding the tax rates and rules – there are over 7,500 taxing jurisdictions, each with varying rules and regulations. Check out this example from a CNET article (http://news.cnet.com/8301-31921_3-57415505-281/politicians-retailers-push-for-new-internet-sales-taxes/): “In New Jersey, for instance, bottled water and cookies are exempt from sales tax, but bottled soda and candy are taxable. In Rhode Island, buying a mink handbag is taxed, but a mink fur coat is not.” Should be interesting to see what happens. Thanks for reading!

  12. The Other Mark

    “Currently, online retailers are required to collect sales tax from customers in states where the retailer has a physical presence (store, warehouse, etc.)”

    Ok, but my supplier is in Oregon, which has no sales tax. Am I supposed to pay everbodys sales tax out of the goodness of my heart? Remember, in order to pay tax, you need to prove nexex( a physical presence) With dynamic IP, I could be anywhere in the world. With a spoofer, I could even be on Mars

    • Matt

      Great point. The nexus idea stemmed from a 1992 Supreme Court decision, Quill Corp. v. North Dakota, and is a primary point on this ongoing debate. It can be quite difficult to define and prove nexus, as the guidelines still appear to be somewhat fuzzy. Nexus will continue to be a pivotal talking point for the online sales tax, so will be interesting to say how legislators weigh this decision among the entire debate. Thanks for commenting! Good stuff. -Matt

  13. David

    Let’s bring on the national VAT tax!

    • Alex

      That is right David! All states should be ruled by a national or federal tax

  14. Mark

    Tell me again why we need a sales tax at all?


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