It's a question that's been debated almost from the very first sale of a product online: Should merchants be required to collect sales tax for the states where the product is shipped to or sold from?
To date, the answer has been that whether taxes are collected or not is pretty much up to the merchant. As a piece by Janet Novak on the Forbes web site points out, the Supreme Court handed down a decision in what has become known as the Quill case which said states cannot require an online retailer to collect tax unless it has some physical connection to the state, such as a warehouse, administrative building, etc.
Last year, senators from both sides of the aisle, Sen. Michael Enzi, R-Wyo. and Sen. Byron Dorgan, D-N.D., introduced bills that would have required e-tailers and catalog companies to collect sales tax for states that are members of the Streamlined Sales and Use Tax Agreement (SSUTA).
The SSUTA was created, according to it web site, to "develop measures to design, test and implement a sales and use tax system that radically simplifies sales and use taxes."
According to the Forbes piece, retailers including Best Buy, Circuit City, Target and Wal-Mart currently collect taxes for purchases made online. Amazon.com, however, only collects taxes for items shipped to Kansas, Kentucky, North Dakota and the state of Washington.
It's not only state budget authorities that would like to see a system developed that would require online retailers to collect state sales taxes.
A group known as the E-fairness Coalition, which represents shopping mall operators along with brick-and-mortar retailers, has been calling on Congress to pass a law similar to the bills introduced last year by Messrs. Enzi and Dorgan.
The E-fairness Coalition cites a number of studies to quantify the impact that continuing as-is will have on state and local governments. The Center for Business and Economic Research projects that in 2008 state and local governments will lose between $21.5 billion and $33.7 billion in uncollected taxes. The Institute for State Studies projects states and local governments will lose as much as $54.8 billion in revenues by 2011.
Moving into a new Congress under Democratic control, groups such as the E-fairness Coalition and the SSUTA are hopeful that a law similar to those previously proposed will be introduced and passed. It still remains to be seen if this scenario will play out as the new Congressional majority has pledged itself to alleviating "middle class squeeze."
Discussion Questions: Is it time for Congress to take steps to require the collection of state and local taxes by retailers selling goods online? What do you believe would be the consequences of such an action?