Tuesday, May 14, 2013

Why I Love the National Internet Sales Tax Plan


The Internet, in the popular imagination, is supposed to be free... But you don’t have to be a right-winger to recoil at the idea of an Internet sales tax. People who shop online have always gotten a free ride... Many states require you to pay that extra sales tax on your tax return, but who does that? Nobody, that’s who. The net effect is that shopping online earns you a big, permanent discount. If you’re buying anything big, it almost always makes sense to avoid physical stores.

At least, it did until recently. During the last two years, Amazon, which had long led the charge against efforts to collect sales tax on online purchases, suddenly began striking tax deals with states. This was a strategic capitulation—by agreeing to collect taxes, Amazon can now build huge warehouses across the country. (It had previously avoided setting up warehouses in many states in an effort to avoid creating a “tax nexus.”) The warehouses allow Amazon to significantly increase its shipping speed, approaching same-day shipping in many areas. Brilliantly, Amazon has turned the tax issue into an advantage.

Amazon’s reversal led the way for a national Internet sales tax plan. That’s how we got to the Marketplace Fairness Act, which seems likely to pass the Senate... (there are also encouraging signs in the House). If the bill does pass, a state like Illinois, which loses an estimated $169 million a year in tax to Internet sales, would be able to force out-of-state retailers (e.g., the Washington-based Amazon) to collect sales tax from any Illinois resident. In other words, your free ride would end—no more tax-free stuff from Amazon...

But don’t hate this bill just because you’ll end up paying more. The Marketplace Fairness Act does something that’s almost unheard of: It makes taxes fairer and simpler. There’s also a carve-out for small businesses—any online company with less than $1 million in annual revenue will be exempt from the law.

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