APR 2014 – Internet Sales Tax Compromise Sought

In an effort to end the long-running battle over the collection of sales taxes for online purchases, the House Judiciary Committee has discussed two possible ideas to tax Internet sales based on the retailer’s home state, rather than the buyer’s.

The tax proposal, known as the origin-based tax would call for the tax rate charged to be determined according to the retailer’s location rather than the buyers.  Proponents agree it would level the playing field for on-line and brick and mortar retailer across the board. However, opponents say such a system would drive Internet retailers to relocate to states that have no sales taxes. States also are anxious for Congress to act.  California lost about $2 billion in taxes on sales by out-of-state online retailers in 2012, according to data from the National Conference of State Legislatures.

Under a 1992 Supreme Court ruling, states are permitted to collect sales taxes only from retailers with a physical presence in their state. Last year the Senate approved legislation allowing states to require that large Internet retailers collect sales taxes regardless of their physical location.

The National Retail Federation, that reports on-line sales compose 6% of all retail shopping, urges the committee to end the “unfair price and market advantage” that online retailers enjoy by not having to collect sales tax on all purchases.