The Last Tax-Free Cyber Monday for Online Retailers?

As states are estimated to lose out on as much as $23.26 billion of revenue today, a coalition of small business leaders is lobbying Congress to require most online retailers to collect sales taxes.
by | November 26, 2012

By Jim Malewitz

Online retailers are expecting a sales spike Monday (November 26), as millions of Americans partake in the marketing gimmick known as Cyber Monday, a day of hardcore holiday shopping from the comfort of one’s computer or smart phone. But to the chagrin of many brick and mortar businesses and state officials, cash-strapped state governments will see little tax revenue from the expected $1.5 billion in sales.

That’s because of a 20-year-old U.S. Supreme Court case and the fact that few states have enacted laws requiring online retailers that aren’t physically located within their borders to collect taxes. States are estimated to lose out on as much as $23.26 billion of revenue, according to the National Conference of State Legislatures.

A coalition of small business leaders is hoping this will be the last Cyber Monday of the era without online sales taxes. It is pressing Congress to pass legislation requiring most online retailers to collect and remit sales taxes.

“Cyber Monday is just another opportunity for out-of-state, online-only retailers to exploit a government-sanctioned loophole that puts local businesses at a significant disadvantage,” ” Alison Joseph, spokesperson for the Alliance for Main Street Fairness, said in a release. “This should be the last holiday shopping season that Main Street businesses have to compete on a playing field that is not level.”

The so-called Marketplace Fairness Act, which has been introduced in the Senate, would allow states to collect taxes on most online purchases, exempting businesses that earn less than $500,000 each year in out-of-state sales.

Though the bill, and others like it, is sure to face resistance in the GOP-dominated House, it has the backing of Republican governors in several states, including Iowa, Michigan, New Jersey and Tennessee. Those are among the 24 states that have complied with the Streamlined Sales and Use Tax Agreement, which allows volunteer sellers to collect state sales taxes.

“As we work to improve the quality and efficiency of services throughout the state, it is crucial that the state has the tools to fairly collect the revenue it is owed,” Michigan Governor Rick Snyder wrote in a letter to Congressional leaders last May.

The Senate bill also has the support of online juggernaut Amazon.com, which now collects sales taxes in seven states: California, Kansas, Kentucky, New York, North Dakota, Pennsylvania, Texas and Washington. It plans to add at least five more states by 2016.

One of Amazon’s chief competitors, eBay, is lobbying against the bill, saying it would thwart the growth of online retailers.

U.S. Senator Jim DeMint, of South Carolina, is helping lead the opposition in Congress. In a blog post last week, he called taxing online sales “a federal decree disadvantaging internet companies by forcing them to collect sales taxes not only according to their state and locality, but across all 50 states and thousands of local tax jurisdictions.”

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