Internet Sales Tax

Here’s a routine the online shopper knows well. Skim a book, try on a watch or compare refrigerators at a local store.

Then head home with the specs in hand and find the item on the Internet,—cheaper, and often with no state sales tax. Of course, you buy it for less,—at times, a lot less.

Dueling pieces of legislation, both of which were introduced in Congress in July, address the issue of whether to close the loophole that allows online shoppers in most states to avoid paying sales tax.

As it stands now, you only pay sales tax for Internet purchases if the retailer has a physical presence, or “nexus,” in the state where you live.

The first legislation introduced July 1 was the Main Street Fairness Act by Rep. William Delahunt, (D-Mass.), which attempts to put e-commerce retailers on equal footing with brick-and-mortar businesses by imposing a state sales tax on consumers who shop online.

As a counter to Delahunt’s bill, is a resolution, introduced Thursday by a bipartisan delegation led by Rep. Paul W. Hodes, (D-N.H.), which would maintain the status quo. It contains language that says “Congress should not impose any new burdensome or unfair tax collecting requirements on small online businesses, which would ultimately hurt the economy and consumers.”

Delahunt claims his bill would accomplish several goals: Bring in much-needed tax revenue for cash-poor state and local governments, avert other types of tax increases, such as on property, and level the playing field between Main Street and Web retailers.

State governments say they lose billions of dollars annually in tax revenue, due to online sales.

“If we can accomplish that [passing the bill], I suspect the states will not have to raise new taxes,” Delahunt told CNBC.

“If you are concerned about rising taxes, this is a vehicle to avoid that. No one wants to pay more taxes. I certainly don’t.”

However, the United States Supreme Court upheld in its 1992 ruling on Quill Corp v. North Dakota the argument that it is too onerous and costly for businesses to calculate how much tax should be collected because of the complexity of tax rules from state to state.

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