Arguments For
If you've looked closely at your income tax return, you know that customers of online businesses actually already pay sales tax on the products they buy online -- or they should. There is a line item on state tax returns where customers that have purchased products online are supposed to disclose the dollar amount of those products so state tax can be assessed. Few people actually fill in that line item.
Proponents of online businesses assessing state tax say that the only way to reliably collect it is when the sale of a product is made.
They also say that the reasons that online businesses have been exempt from state tax no longer apply. Online businesses have matured since the Supreme Court opinion in 1992 and compete quite well with traditional brick and mortar firms. They don't need the benefit of state tax exemption for that reason.
Another reason that online businesses have been exempt from sales tax is the difficulty associated with collecting it. Large businesses with an online presence like Target and Wal-Mart have stores in every state so they have to collect sales tax from online customers in every state. If they have figured out how to collect sales tax, then other firms should be able to do the same.
This issue has become important at this time because of the Great Recession. Money from the Economic Stimulus Act is flowing from the federal government to the state and local governments to keep them afloat. The argument is that sales tax from online businesses could make at least a portion of that federal money unnecessary, which would reduce the federal government's debt.
Those that argue in favor of this position say that it would not hurt online business because people now routinely shop online and since they pay sales tax on their purchases at traditional retail stores, they won't feel at a disadvantage if they have to pay sales tax at online stores.
Arguments Against
John Greco, President and CEO of Direct Marketing Association makes the case in a recent issue of USA Today against requiring online businesses assessing sales tax.
Greco asserts that collecting sales tax is not simple and is particularly not simple for online retailers since they have to deal with sales tax laws from such a variety of states and locales. He thinks that it would suppress ecommerce since it would put a burden on online retailers. More specifically, Greco feels that it is the place of the state authorities to collect the sales tax, not retailers.
Even though the argument for Internet retailers collecting sales taxes is that it would help the revenue of state and local governments, Greco alleges that the amount of revenue that would result is overstated at a very high cost to the business of ecommerce.
