Online retailers don't have to charge sales tax to their customers unless they have a physical presence in the customer's state. Some say this gives them a major advantage. There is a growing movement to require online businesses to charge sales tax to help state and local governments with their revenue streams.
Since a portion of the economic stimulus money from the federal government is being used to help state and local governments weather the recession, some say that sales tax revenue from online businesses could save Washington from having to use this money. Others say that levying this sales tax on struggling online businesses would undermine e-commerce at a very difficult time.
Current Status
In 1992, there was a Supreme Court ruling that said that sales tax would be too hard to collect on Internet retail sales due to the vastly different sales tax laws between state and local governments. In addition, the argument was made that assessing sales tax would put an undue burden on start-up online firms who were trying to compete with established traditional firms.
The result was that customers only pay sales tax on what they buy from online businesses if that online business has a physical presence in their state. That exemption still stands.
Background
Simply put, some people think that since online businesses have evolved so much since the 1992 Supreme Court ruling and since the economy is in crisis, online businesses should now assess sales tax. The feeling is that would help state and local governments and economic stimulus money from the federal government would not have to be given to those governments.
