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Door opens for online sales taxes

By Kay Bell ·
Thursday, December 5, 2013
Posted: 3 pm ET

When two courts, one in Illinois and another in New York, issued divergent opinions on whether states can demand sales tax collection from Internet sellers, most tax and law watchers had hoped the U.S. Supreme Court would settle the matter.

It won't. At least not in the near future.

On Cyber Monday, generally the busiest online shopping day of the year, the Supreme Court refused to intervene in the continuing sales tax battle among states and websites. and had asked the nine justices to review the decision by New York's highest court that OK'd the collection of sales taxes from companies if they had online affiliates who received commissions for selling their goods. The online retailers contend the affiliates do not create sufficient nexus, the legal term for physical presence, in the state to require New York sales tax collection.

The Illinois Supreme Court, on the other hand, ruled in October that such an online connection was not enough for that state to require Internet companies to collect sales taxes on products sold to its state's residents.

Sales tax door ajar

By refusing to hear the New York case, the Supreme Court basically opened the door for more states to follow the Empire State's broader sales tax collection model. A lot of them likely will walk through it.

The reason? Money. The National Conference of State Legislatures estimated in 2012 that states lost $23 billion in overall uncollected taxes, with about half of that lost amount from online sales.

Even a portion of online sales tax money could bring in large streams of new revenue to cash-strapped governments, says Andrew Wesemann, a doctoral student in the Institute of Public Policy at the University of Missouri Truman School of Public Affairs.

Sunshine State sales taxes

That's the thinking of lawmakers in Florida.

The Sunshine State has no state income tax, so it depends on sales taxes to help provide operating money.

Amazon will begin paying sales taxes in Florida as soon as the retailing giant opens two distribution centers it is building in the state. The warehouses will be the undisputed physical nexus required for the tax collection.

But other online retailers are not collecting sales taxes from customers and don't have any plans to do so.

During the 2013 Florida legislative session, a bill similar to the New York law was introduced. It would have required Internet retailers to pay the sales tax if they had affiliates in Florida or if the online companies paid commissions to individuals or companies that solicited sales for the out-of-state retailers.

That bill stalled, but State Sen. Gwen Margolis, D-Coconut Grove, has already filed a similar bill (SB 202) for the 2014 session.

National tax impetus, too

Wesemann, who has conducted extensive research on Internet sales taxes, says the Supreme Court action also may put pressure on the federal government to move forward with its Internet tax legislation.

The Marketplace Fairness Act would force online retailers nationwide to collect sales tax on purchases based on the rates in the buyer's home city, county and state.

The Senate passed the bill in May. It is still awaiting House action. A bill in that chamber has more than 60 bipartisan sponsors.

Rep. Bob Goodlatte, R-Va., chairs the House Judiciary Committee and has authority to move the bill forward. That might happen in 2014 since Goodlatte in September released a set of Internet sales tax principles he would like to see considered in any online sales tax legislation.


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Veteran contributing editor Kay Bell is the author of the book "The Truth About Paying Fewer Taxes" and co-author of the e-book "Future Millionaires' Guidebook."

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El Cid
May 20, 2014 at 1:35 pm

We pay "State taxes" in any other purchases we make,why not on line? it should not be any different.

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January 07, 2014 at 3:23 am

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mike fox
December 09, 2013 at 9:59 pm

Yep, just another way to stick it to the little guy. Like we aren't paying more taxes for everything else as it is. The governmental entities need to do better at sticking to a budget like us. In other words; don't spend money you don't have! It's called responsibility.

Gary Giroski
December 09, 2013 at 8:47 pm

It would be just another source for government entities to waste more capital that should stay in the tax payer’s pockets. That way the money would be used for necessities and not wasted like all the other billions wasted.

Walter Kellogg
December 09, 2013 at 8:03 pm

The only way this could possibly work is if there was a clearinghouse service (either government or private) which would not only be able to calculate the various rates and also be able to forward the funds to the correct agencies. Perhaps based on zip code of the buyer. One thing to also consider, what is taxable in one state might not be taxable in other states, such as food.