An end to the free online tax ride nears

As pressure builds, lawmakers consider moving on online sales taxes, but won't act before election

By , Computerworld |  IT Management, ecommerce

Colorado mandated that out-of-state retailers report purchases by state residents to its tax authorities, who will then get a tax bill. It was declared unconstitutional in federal court earlier this year and is being appealed.

Another method gaining traction in states is to declare that advertising agreements, such affiliate ads, create physical presence for retailers. One such law in Illinois was struck down in federal court earlier this year.

"It's an absolute disaster and much is what is happening is arguably unconstitutional, but [the states] are doing it because Congress has not acted," said Stephen Kranz, an attorney in the tax practice group at Sutherland Asbill & Brennan, of the state's action.

Steve DelBianco, the executive director of NetChoice, said that even though these state efforts fail in court, "they still generate the pressure that they were intended to generate, pressure for a national solution."

The states have also been working among themselves over the last decade to streamline taxes, with 24 states agreeing so far to simplified systems.

Congress is expected to recess on Friday and so if it does take up tax legislation it will be during the lame duck. But there will be a fight if it is brought up. Some lawmakers see the imposition of a sales tax collection requirement as a new tax.

Knezek has no problem with a sales tax obligation provided the playing field is level. He says there are some people who argue for "Buy American" and are up in arms about buying overseas, "but those same people won't buy in their backyard because they can save on sales tax" via a remote seller.

Something that could prod lawmakers to act is Amazon.

Amazon began collecting sales taxes this month in California and in July in Texas, two states where it is building distribution centers to speed delivery. It now collects in eight states.

Just before Amazon started collecting sales taxes in California, Tom Szkutak, the chief financial officer at Amazon, was asked during an analyst call about the impact of taxes on revenue. He said the online retailer collects either a sales tax or a value added tax in 50% of its business around the world.

"We have very good business in those jurisdictions," he said, according to a transcript of the call on Seeking Alpha.

Nearly 12 years ago, Amazon complained to lawmakers that building a tax collection system would be in the high six figures.

Originally published on Computerworld |  Click here to read the original story.
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