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Door opens for online sales taxes

By Kay Bell · Bankrate.com
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.

Amazon.com and Overstock.com 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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15 Comments
GAH
December 09, 2013 at 4:51 pm

I too live in Florida and will boycott Amazon when it starts charging taxes. State, local and federal governments have to curtain wasting our moneys. The gravy train of free money is going to stop - one way or another!

Jim
December 09, 2013 at 12:20 pm

I live in FL, as soon as Amazon begins charging sales tax in Florida I will cancel my prime membership and shop somewhere else. I look for sellers with free shipping and no sales tax, when that disappears I will start using local retailers again unless internet prices drop low enough to compensate for tax and shipping.

Ms. Beppy
December 09, 2013 at 11:12 am

One of the problems with taxes is that people who are self employed (hairdressers, house cleaners, long term babysitters, etc.)who think they are being paid "under the table" pay little if any tax on that income. Don't blame the politicians solely. It isn't only government spending. I don't defend the amount of taxing going on, but just look at the woman cutting your hair, cleaning your house and caring for your children. By not issuing a W-2 to them, you are contributing to the problem. Don't walk around with blinders on!

N, Flores
December 09, 2013 at 10:05 am

The Govt. needs to STOP SPENDING! Our Congress needs to stand up to Obama and tell him NO MORE! Cut him OFF!! They need to cut off all their extravagant vacations. If they want to go on a vacation and take their friends along....let them pay for it. Quit sending money to the Middle East...They have enough! Quit taxing us and let us have the money we earn to put BACK into the economy as it SHOULD BE!

Adam Sebalos
December 09, 2013 at 4:21 am

An original Tea Party is in order now. Throw out throes who advocate more Sales Taxes Federal, State, County, city and any person who wants to get on the Sale Tax binge .

DrTrumpet
December 09, 2013 at 4:14 am

Who are the idiots supporting this so we can put them on the list of politicians that need to be voted out next election.

Matthew
December 09, 2013 at 12:52 am

Unacceptable. They don't use the tax dollars I pay now properly now what gives them the right to suck more money from its tax paying citizens. The government must be failing hard if they need MORE tax dollars.

Gary Katz
December 06, 2013 at 2:34 am

Illinois will never stop trying to suck more money out of the wallets of its citizens. If I order something from an out of state internet retailer, why should the state get involved in that transaction in any way? How is that different than if I buy something while I'm on vacation, out of state? Am I expected to come home, report the purchase and pay taxes on it? Don't forget, whatever money you spend on a purchase was already taxed when you earned it. So sales taxes by their nature are a form of double dipping by the state, except it's worse because county and city taxes are also added on. Disgusting.

D. Robbins
December 06, 2013 at 1:13 am

How many will start purchasing from other countries? I don't think those countries would be contributing to our tax base. Though other obstacles remain for the consumer to overcome (i.e. shipping costs, currency conversion, personal information security...), I think shopping outside the USA will increase. I already purchase a fair amount from overseas because I find many of the items more interesting and many times of better quality than American products. I say this as a overtaxed American. In short, taxes would make buying American, less tolerable. I'd rather pay a small business in Great Britain a shipping fee over paying another dime in taxes. And don't give me that fair-share garbage.

R. Wakefield
December 05, 2013 at 9:02 pm

I am completely against the collecting of sales tax for internet purchasers.

There would be many difficulties for businesses, large and small, trying to collect taxes for not only individual States, but there is also a problem of different counties charging different tax rates in a particular State. Florida comes to mind. When I lived there, there was a State sales tax and various counties collected different percentages of sales tax depending on the county's by-laws.

The burden that would be on individual companies would be enormous for them to try and collect taxes at different rates for each State as well as different county's as I've mentioned.

Consider the cost to these company's to have the staff necessary to keep them legal while collecting and distributing the taxes.

It is beyond comprehension and I just don't think the Gov't needs any more of our money.

Not to mention how many small internet company's that would have to fold up and lay-off all their employees.