Support Growing for Extending Sales Tax to Online Purchases

[muon2]

Most states that impose a sales tax require residents to pay on out-of-state purchases. It's hard for the states to enforce except on big-ticket items like cars and boats. Before the web opened up commerce, catalog sales were the only significant uncollected source.

The 1992 court decision was about catalog sales. It said that an out-of-state retailer had no obligation to collect tax for a state where it had no physical presence. The logic was that the definitions of the categories of taxable items were so different from state to state, it was unreasonable for the retailer to be expected to keep track of them, unless they were in the state itself.

The decision applied to any out-of-state retailer, and that included the new e-tailers. It wasn't a big deal in the 1990's, but by the mid 2000's states were looking into ways to circumvent the decision and force e-tailers to collect. Many states formed a compact and created uniform sales category definitions so that they could collect in each others states. In the last three years states have hit on the fact that many e-tailers use marketing partners in the states and that provides a brick-and-mortar presence in the state as required by the decision.

[muon2]

Why should online retailers be exempt? That doesn't seem very fair.

If you were talking about only State sales taxes, I'd agree, but there are also local sales taxes which can levied as well and is difficult to know which local taxes should be applied based on the billing address.  Not only that, what gets subjected to the sales tax varies considerably from place to place.  Sales taxes are not the simple subject some people think they are.

That's why the best solution would be for the states to agree on taxable categories and make interstate (including internet) sales only subject to the state portion of the sales tax on the agreed categories. Rates could still vary from state to state.