Trade group: Expect big push for online sales tax

Online sales tax creates 'clear and present danger' to the Internet, NetChoice says

Steve DelBianco is worried that the U.S. Congress will soon pass a law allowing states to collect sales taxes from most online sellers.

An expected push for online sales tax legislation in Congress in 2013 is a "clear and present danger to the Internet," said DelBianco, executive director of e-commerce trade group NetChoice.

Three bills introduced in Congress during the past two years would allow states to collect sales tax from online sellers that have no physical presence there. Those bills have failed to pass, and aren't likely to pass in a lame-duck congressional session after November's election, but DelBianco sees growing momentum for an online sales tax.

"The chances are better than ever that Congress will do something to help the states collect more sales tax," DelBianco said.

NetChoice argues that an online sales tax would be complicated and expensive for businesses, with more than 9,600 taxing jurisdictions in the U.S. "Consider a catalog company in Montana who must now figure out sales tax rates and tax holiday rules in Miami," the trade group said in a new blog post. "Or a struggling artist who has to figure out tax rates across the country when he sells his paintings over the phone."

States have "false hope" in the legislation, but online sales taxes would raise a tiny percentage of most states' budgets, DelBianco said. And small retailers pushing a sales tax as an issue of fairness have their sights on the wrong opponent, he suggested.

"Small-town retailers are getting clobbered far more by Wal-Mart and Target than by the Internet," he said. "In fact, Main Street stores turn to the Internet to otherwise reach customers that would not come to their store."

States have not been able to collect sales tax on out-of-state sellers since a 1992 Supreme Court ruling.

For more than a decade, a group of states has been pushing to simplify sales taxes across the country in an effort to convince Congress to pass a sales tax law, but critics say there are still too many differences in sales taxes across the country.

Supporters of an online sales tax say it's not fair that many online retailers don't have to collect sales taxes while bricks-and-mortar stores do.

"As a former small business owner, it is important to level the playing field for all retailers -- in-store, catalog, and online -- so an outdated rule for sales tax collection does not adversely impact small businesses and Main Street retailers," Senator Michael Enzi, a Wyoming Republican and cosponsor of an Internet sales tax bill, said in August. "We never intended to give out-of-state businesses an advantage over those businesses that are a part of the community. Yet that is exactly where we sit unless Congress allows states the opportunity to fix it if they so choose."

States with sales taxes require residents that buy products online to pay sales tax, but few people comply or even know about those rules. Because those laws already exist, a law requiring online retailers to collect sales taxes would not be a new tax, supporters argue.

NetChoice included the online sales tax in its new Internet Advocates' Watchlist for Ugly Laws (iAWFUL), released Tuesday.

Also on the list:

-- A Pennsylvania Department of Revenue ruling that says any out-of-state retailer who places a paid advertisement with a Pennsylvania website or publication must collect state sales tax.

-- A push in New Jersey and Oklahoma that would allow executors to take control of the social media pages and email accounts of people who die, instead of allowing the service providers and their customers decide what happens to those accounts. Lawmakers "ought to respect the wishes of the dead," DelBianco said.

Grant Gross covers technology and telecom policy in the U.S. government for The IDG News Service. Follow Grant on Twitter at GrantGross. Grant's e-mail address is grant_gross@idg.com.

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