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Has The Time Come for An Internet Sales Tax?

WASHINGTON – OCTOBER 31: U.S. President George W. Bush signs H.R. 3678, the Internet Tax Freedom Act Amendments Act of 2007 in the Oval Office October 31, 2007 in Washington, DC. The bill will extend certain tax free transactions that take place via the internet. (Photo by Win McNamee/Getty Images)

Online sales passed the $1 billion dollar mark on Cyber Monday this year. As you can imagine, politicians see this as a gross waste of revenue for the big spenders in Washington. One of the major advantages of buying online for many people is no sales tax. For example, since Montana does not have a sales tax, and you buy my books from me on my web site, there is no sales tax. The reason is because you are buying it inside my Montana store. The fact that you are buying online in New York or Timbuktu makes no difference as far as the Montana Dept. of Revenue and the IRS is concerned.

Sales Tax and the General Population

Polls overwhelmingly show that the rank and file online buyer does not want a sales tax on Internet purchases. Most American’s feel they are taxed to death anyway and are very resistant to one more assault on their incomes. Another sizable group agrees that sending more money to state and federal coffers will simply increase what our elected leaders are already wasting at unprecedented levels.

Internet Sales Tax and The Fiscal Cliff

As of this writing there is no agreement between the House and the President as to resolving the fiscal cliff issue. Can a bill to create an Internet sales tax be attached to this resolution, when and if, it’s finally agreed on? According to some sources the votes would be there to pass a stand alone Internet Sales Tax if it were brought to the floor for a vote.

Be Careful What You Wish For
One of the problems with having non-business people passing laws about business is the unintended consequences that usually arise from lack of business experience. There are currently more than 9,600 different taxing jurisdictions in the country. Imagine having to compute and send sales tax payments to each of those 9,600 jurisdictions. Paying just 10% of those would still be burdensome.

In Montana we do not have a sales tax but there are some exceptions as to collections on some online sales. Here’s the fine print on an online order receipt I received this week:

“Although we, as the seller, may not be obligated to collect your state’s sales tax, this purchase is subject to sales tax unless it is specifically exempt from taxation. The purchase is not exempt merely because it was made over the Internet or by other remote means. Your state, if it imposes a sales tax, may require that you report and pay the tax due on your purchase. Details of how to file a state sales or use tax return may be found on your state’s department of revenue website.”

Some Final Thoughts

As you can see, Internet sales taxes could be a real can of worms for both consumers and merchants alike. However, congress may just say, “Damn the torpedoes, full speed ahead.” The other unintended consequence is the increase in pricing to cover the additional manpower, not only at the store level, but the online level as well. Proponents of the measure claim it would level the playing field between online merchants and brick-and-mortar storefronts. While there may be some truth to that we must also consider that many storefronts are creating new profit centers by moving to online selling. There is no question that tax reform is desperately needed in the US. I’m not sure adding another tax to the mix will help with simplification of our tax code. Would an Internet tax affect your online buying?

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