Congress Considers Internet Sales Tax
Vol. 872 
December 1, 2011

Just days after Cyber Monday 2011 set a record with $1.25 billion in online purchases, Congress is reviewing three separate bills that would require Internet retailers to collect sales taxes in states where they have no physical presence. If the legislation passes, retailers like Amazon and eBay would be forced to tax consumers for purchases in as many as 45 states, resulting in estimated additional revenues of more than $23 billion annually. "This is not a new tax we're collecting," said Rep. John Otto (R-TX). "It's a tax we've been unable to collect."

While there is no federal mandate on Internet sales tax collection, the current precedent was set by the 1992 U.S. Supreme Court decision in Quill v. North Dakota. In its ruling, the High Court said a business must have an office or retail shop in a state to be compelled to collect taxes there. However, justices also said at the time that Congress had the right to overrule the decision through future legislation. Presently, consumers are supposed to pay taxes on their own for purchases made online from another state, although it's believed that very few actually do so.

In a U.S. House Judiciary Committee hearing yesterday, Internet retailers offered different viewpoints about the proposed bills. Amazon, the world's largest online retailer, reversed its prior position and announced its support for Internet sales taxes. "With today's computing and communications technology, widespread collection no longer would be an unconstitutional burden on interstate commerce," said Paul Misener, Amazon's vice president for global public policy. "Congress feasibly can authorize the states to require all but the very smallest volume sellers to collect."

Among those opposing the legislation are Amazon's chief rivals eBay and Overstock.com, which argue the new laws would benefit large retailers like Wal-Mart that already enjoy marketplace advantages. "The real world effect will be to disadvantage small business retailers, a segment of retailers that is already losing market share under the status quo," said Tod Cohen, deputy general counsel for eBay.

Wednesday's Judiciary hearing was only an opening round in the legislative debate over the Internet tax bills. No Congressional votes have yet been scheduled.