Hawaii Bill Aims to Tax Online Sales

State is latest to try to level the retail playing field.

by Auctiva.com staff writer
- Mar 03, 2009

Online shoppers in Hawaii who buy music, books and electronics may have to pay the sales tax their counterparts fork over at the counter in brick-and-mortar shops if new legislation passes.

A Senate committee approved the bill this week, and it's now heading to the general Senate for a vote. The bill could bring in as much as $166 million for Hawaii this year to help shrink the state's $1.8 billion deficit.

"If we were ever looking for a time to collect taxes that aren't being paid, this would be the year," Sen. Carol Fukunaga tells The Associate Press. "We are much more vulnerable to people buying out-of-state when economic times get tough."

Current laws in Hawaii require that all purchases be taxed regardless of where they are bought, but courts have decided that only e-merchants with physical locations in state have to collect taxes. This goes along with a 1992 U.S. Supreme Court decision that deemed out-of-state merchants exempt from collecting sales taxes in states where they don't have a physical presence.

Hawaii is just the latest state to initiate legislation to tax online goods. Connecticut, California and Minnesota introduced similar bills in February.

So far 22 states have laws that tax online goods

So far 22 states have laws that tax online goods and participate in the Streamlined Sales Tax Project, which is meant to "find solutions for the complexity in the sales tax systems," notes the project's Web site.

The American Booksellers Association says it's happy with the new legislation because it recognizes "the importance of locally owned retailers to their state's economy by going to bat for e-fairness."

"In addition to the booksellers in these four states, we continue to urge booksellers in the other states that collect sales tax to call on their lawmakers to introduce legislation in support of e-fairness," notes Oren Teicher, the association's chief operating officer.

But online retailers haven't been as happy about bills aiming to tax online goods. Last year, Amazon sued the state of New York when it passed a law that required some out-of-state retailers to collect sales tax.

In the lawsuit, Amazon said the New York law was "overly broad and vague" and went against the equal protection clause of the Constitution because it was directed specifically at the company, according to reports. Overstock.com later filed its own lawsuit. Neither company has brick-and-mortar stores in the state of New York so store officials said the law was unconstitutional. Amazon's lawsuit was dismissed in January.

That ruling may prompt other states to enact tax laws for online retailers, says the ABA. Florida appears to be among them. Last month, Florida Rep. Michelle Rehwinkel Vasilinda filed legislation and sent letters to President Barack Obama and Congress, asking them to pass a federal law that would allow states to collect taxes on sales made online, according to reports.

Florida is losing $2 billion to $4 billion a year in uncollected taxes on online goods, according to Vasilinda's Web site.

"I believe that with adversity comes opportunity, and we should look for ways that will help Florida out of this financial crisis," she notes in reports. "My legislation simply provides a mechanism to uphold the current law and collect revenue due to the state."

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.

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