Through a special arrangement, presented here for discussion is a summary of a current article from Retail Paradox, Retail Systems Research's weekly analysis on emerging issues facing retailers.
On Sunday June 7, the San Francisco Chronicle published an editorial to say that it's high time to tax retail sales on the internet. What gave rise to this opinion is the fact that California is "broke, busted, and disgusted," and needs money. With internet sales approaching 4 percent of total retail sales in the U.S., the e-channel is no longer just a technical curiosity - it is now a fact of retail life.
Minnesota, Connecticut, Illinois, Tennessee, and Hawaii are also considering the issue now. Last week, the following news item appeared in the Honolulu Advertiser:
"State lawmakers have sent Gov. Linda Lingle two approaches to get Mainland retailers to collect and pay taxes on sales from Hawaii. One bill would allow Hawai'i to join 23 other states in the Streamlined Sales Tax Project to simplify state tax laws and encourage retailers like Amazon.com to collect and pay state sales and use taxes. States that have signed up for the project are unable to require retailers to pay the taxes, however, until Congress passes federal legislation clarifying it is not a burden on interstate commerce. The second bill would immediately require Mainland retailers to pay the state's general-excise tax if they have an economic nexus in the Islands through a presence on local Web sites. Local Web sites can get paid commissions for referring customers to Mainland retailers through links. States are losing out this year on nearly $7 billion -- $36.6 million in Hawai'i -- in uncollected taxes on Internet commerce, according to a study by researchers at the University of Tennessee."
Given the condition of the U.S. and states' economies and the loss of tax revenues during this recession, the momentum is building across the country to address this issue. Whether the U.S. Congress will deal with it is an entirely different matter. As long ago as 2001 (when internet sales only represented about 1.5 percent of total retail sales), 40 State Governors sent a letter to Congress asking that a 1998 moratorium on internet sales tax be lifted. But in October 2007, the House of Representatives voted 405-2 to pass the Internet Tax Freedom Act Amendments Act, extending the moratorium on internet access taxes and other taxes unique to the internet until November 2011.
RSR on June 23 ran a "quick take" poll to see what our readers think about the prospect of an Internet Sales Tax (the results are in the chart below).
Safe to say, colonial Boston's Rev. Jonathan Mayhew's 1750 call for "no taxation without representation" still rings in many Americans' ears! The most interesting data point from this survey is that not one of the 54 people who answered the question had "no opinion." Twice as many respondents were adamantly opposed to the new tax as those who were in favor of it. If our readers are any indication, this issue is bound to polarize the voting public.
Discussion Questions: Is it time for U.S. states to tax internet purchases? What's the likelihood that such legislation will get passed in today's economic climate? What impact would taxes have on e-commerce?