Federal Internet Tax Bill in the Works

Taxing online sales could generate $7.5 billion in revenue.

by Auctiva.com staff writer
- Apr 22, 2009

A new bill is being drafted that could require online retailers throughout the country to collect sales tax from their buyers.

Several states have either enacted or are considering legislation that requires e-merchants to collect taxes from their customers, even if they don't have a physical location in the state where their customers live. This new bill, however, would require merchants in all 50 states to collect taxes—regardless of their physical locations.

"This would be a fiscal relief for the states that wouldn't require any money from the federal government," says Neal Osten, a senior policy analyst for the National Conference of State Legislatures, in reports.

Osten's organization is creating the bill and members think it could pass, but first it will have to make it through Congress later this week.

Merchants would be "compensated" for their work and would not be punished for making mistakes when they collect taxes, reports Business Week. Spreading the requirement to all 50 states would generate $7.5 billion in sales tax revenue every year, according to reports.

But some e-commerce sites, including auction giant eBay, oppose the bill. eBay is trying to protect the interests of its sellers, who may incur more costs if they have to collect taxes, according to reports.

Amazon and Overstock opposed a similar bill last year when they both sued the state of New York for requiring the companies to collect sales tax, despite them not having a physical presence in the state.

"It makes us tax collectors," asserts Overstock President Jonathan Johnson III.

Currently about 1,100 online merchants collect sales taxes voluntarily, even if they don't have a physical presence in the state where their customers reside, reports say.

Still, a recent study by the Rockefeller Institute showed that last year, sales tax revenue was at its lowest level in 50 years, when it dropped 6.1 percent, Osten notes.

Democratic Rep. Jim Davine of Minnesota believes all online sales should be taxed. The government held off on requiring this because the Internet was just developing and politicians did not want to hinder its growth, he notes.

"It's no longer this fragile baby you are afraid to get crushed," Davine says in reports.

Others aren't so sure the bill will make it past Congress.

"We are skeptical that this Congress will enact legislation to facilitate state (and possibly local) taxes of online sales, though the effort appears to have a somewhat better chance than in prior Congresses," says analyst Blair Levin in reports. "We note continuing resistance, particularly among Republicans but also among Democrats, to taking actions that can be seen as raising taxes, particularly during a recession."

About the Author

Auctiva staff writers constantly monitor trends and best practices of those selling on eBay and elsewhere online. They attend relevant training seminars and trade shows and regularly discuss the market with PowerSellers and other market experts.

Other Entries by this Author

Follow Us