The Internet Tax Man Cometh (Again!)

With the government still struggling with falling tax revenues as a result of the weak economy, proposals to do away with the Internet sales tax moratorium are once again being talked about in the halls of Congress. A bill currently in the Senate dubbed the ‘Main Street Fairness Act‘ would do just that.

Internet retailers get around having to charge sales tax on purchases as long as they do not operate a physical presence in the state which they operate. For example, while Target and Amazon may sell a TV for the same price, it would actually be more expensive at Target’s site because sales tax must be included.

An Overdue Idea?

Democratic Senator Dick Durbin is the bill’s chief sponsor. He argues that the original purpose of the moratorium was to help the then-nascent e-commerce industry to succeed. Now that online retailers like Amazon are generating billions in revenue, it amounts to an unfair advantage for these companies, he argues.

“This idea is overdue,” Durbin said. “Online retail sales are now very fulsome and are growing at the expense of local units of government.” While Durbin may be right, the chances of it succeeding are slim. Republicans control the House and with a large portion of them part of the anti-tax Tea Party movement, it likely would be voted down.

In fact, one of the Tea Party’s major groups, FreedomWorks, is attempting to rally individuals against the bill.

“The bill seeks to hurt online retailers and consumers alike, and will suppress internet entrepreneurship and your wallet,” Abraham Hamadeh said in a blog post recently. “The internet has operated efficiently without taxation and government regulation since its inception, and that’s what makes the internet an unrivaled marketplace for ideas and goods.

Durbin’s efforts are nothing new, though. As early as 1997, we were covering attempts to stop cybertaxing, and efforts to start taxing Internet sales have circled the halls of Congress almost continuously since then.

Playing Hardball to Prevent the Inevitable

Interest groups and companies like Amazon have been vigorous in fighting back attempts to collect sales taxes. When Texas attempted to collect sales taxes from online retailers with distribution centers in the state, Amazon threatened to pull out completely. The bill was later vetoed by the governor. In South Carolina, Amazon won an exemption from a new law using the same strategy, and in Tennessee, Amazon got a proposal tabled by also threatening to move facilities elsewhere.

Playing hardball with state governments may only be delaying the inevitable. Sooner or later brick-and-mortar companies are going to be able to pressure those against taxing these online retailers. It’s only fair that these companies pay their fair share, and are on a level playing field as other merchants.

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