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Another effort to collect online sales taxes

By Kay Bell · Bankrate.com
Thursday, July 8, 2010
Posted: 2 pm ET

If you're like me, you shop online because it's convenient. And if you're like a lot of Americans, you also shop online to avoid sales taxes.

That's not as easy as it used to be. I remember when Internet stores made a big deal about the tax savings. States, however, soon realized how much money they were losing and started demanding their tax cut.

Disagreements over which retailers owed, however, soon cropped up. Congress got involved, threatening to enact a law that would prohibit states from collecting sales taxes on e-commerce.

Eventually, the Supreme Court had its say, ruling that an online retailer didn't have to collect state sales taxes unless the business had an actual physical presence, known as nexus, in the state in which the purchaser lived.

But even after high court's 1992 directive, several states, most notably New York, still are trying to claim nexus for tax purposes. This time they point to websites operated by residents in their states that have ads from such out-of-state retail giants like Amazon.

Amid this chaos, the Streamlined Sales and Use Tax initiative, or SSTI, keeps plugging along. This multistate effort was created to find ways that sellers in the more than 7,500 taxing jurisdictions across the United States could effectively and easily collect and remit appropriate sales taxes.

However, there's one other hurdle before these SSTI states can get their hands on much-needed revenue. They need Congress to again get involved.

In its nexus ruling, the Supreme Court also said that only Congress has the authority, under the Constitution's commerce clause, to require all retailers to collect sales taxes.

So while the SSTI lays the foundation (so far 23 states have signed the agreement), state tax collectors have been waiting for authorization from Washington, D.C.

They might finally get it.

Legislation to give SSTI members collection authority over remote sellers has been introduced in the House by Rep. William Delahunt, D-Mass. His "Main Street Fairness Act" (H.R. 5660) is similar to a bill he sponsored in the past Congresses. A companion Senate bill is expected to be introduced by Sen. Mike Enzi, R-Wyo.

Realistically, the way Congress has been operating, or more accurately not operating, this session, quick action on the bill is unlikely.

But given the financial straits that many states find themselves in right now, there is pressure on Capitol Hill to lend whatever support it can.

Plus Delahunt’s bill has strong support from the National Retail Federation, which says the Main Street Fairness Act would help to create a level sales tax collection playing field among all types of retailers.

And this time, one of the legislation's cosponsors is Rep. John Conyers, D-Mich., who is chair of the committee to which it was referred.

Do sales taxes affect whether or where you buy items? If you had to pay sales tax on an Internet purchase, would you still buy it? Would you be more inclined to buy from a local retailer if you didn't get a sales tax break from an online outlet?

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