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