2008 Woodie Awards
Congress ponders taxes of online sales
Sruthi Valluri, Collegian Staff
Issue date: 4/3/08 Section: News
Online shopping saves students from having to pay taxes that can amount to rates near 7.5 percent. This tax-free haven is derived from a 1992 Supreme Court ruling, which made it illegal for states to collect taxes unless the merchant had a physical connection to the state and its resident customer.
Under this ruling, retailers such as Wal-Mart can collect taxes on most online sales, but Web sites like Amazon.com can only collect taxes on shipments to a handful of states.
For students, this means that buying text books from across the country -except for a few states - is tax free. And in most cases, students who resell items for a profit can keep these profits without paying taxes.
While the Supreme Court's decision provides consumers some amount of relief, it left the circumstance open for congress to begin tax collection from out-of-state sellers.
A 2004 University of Tennessee study estimated that in 2003, state govern-ments lost about $15.5 billion in revenue to these unclaimed taxes. In 2008, the study's authors said, this number would grow to be $21.5 billion. With the econ-omy under pressure, lawmakers are looking to close this tax gap.
The Supreme Court has ruled several times against collecting out-of-state taxes, not because of its legality, but because of the bureaucracy involved. Com-plying with thousands of different state tax codes would be too cumbersome for merchants.
Congress hopes to avoid this complication by standardizing state laws. In 2005, Sen. Michael Enzi (R-Wyo.) and Sen. Byron Dorgan (D-N.D.), introduced a bill called the Sales Tax Fairness and Simplification Act. The bill included a set of codes that would simplify almost 7,500 state jurisdictions to allow merchants to collect tax from any state that adopted standards set by the bill.
The bill was unpopular in a Republican-dominated House, but 15 states adopted the standards and more than 1,000 merchants voluntarily signed up to col-lect taxes from the SSUTA states. The move resulted in almost $75 million in revenue for states. With elections coming up and a shift in party demographics, similar and more sweeping bills will be making their way to the floor for the sec-ond time.
The debate pits lobbyists against each other. Web sites like eBay and Ama-zon.com would face a drastic decrease in customer traffic if a law were put into place. Traditional retailers and state governments, on the other hand, support the idea; retailers would be able to compete evenly with online companies, and state governments would collect revenue.
In Massachusetts, a bill like the Enzi-Dorgan legislation would translate to $350 million this year. Opponents point out that even though there is an increase in revenue, collecting taxes on the Internet would "stifle the growth of online com-merce and weaken the economy," according to the Boston Globe.
For online customers, a sales tax implies the loss of income. Catherine Eng-land, a spokeswoman for eBay, pointed out that nearly 724,000 customers use eBay as either a primary or secondary source of income, which sometimes amounts to nearly $10 million. According to the IRS, any amount more than $400 in self-employment is eligible for taxation. Students who make profits on their text books, therefore, are obligated to report earnings as income.
The idea is not popular, especially since online shopping has become in-creasingly popular. But while internet tax legislation seems to be in the near future, any reform would have to involve bipartisan and interstate cooperation. If lawmak-ers were to consider an internet sales tax in the next session, they would be the seventh Congress to do so. All their efforts so far have not been successful, so there is no guarantee that the next bill will pass.
Sruthi Valluri can be reached at valluri@student.umass.edu
Under this ruling, retailers such as Wal-Mart can collect taxes on most online sales, but Web sites like Amazon.com can only collect taxes on shipments to a handful of states.
For students, this means that buying text books from across the country -except for a few states - is tax free. And in most cases, students who resell items for a profit can keep these profits without paying taxes.
While the Supreme Court's decision provides consumers some amount of relief, it left the circumstance open for congress to begin tax collection from out-of-state sellers.
A 2004 University of Tennessee study estimated that in 2003, state govern-ments lost about $15.5 billion in revenue to these unclaimed taxes. In 2008, the study's authors said, this number would grow to be $21.5 billion. With the econ-omy under pressure, lawmakers are looking to close this tax gap.
The Supreme Court has ruled several times against collecting out-of-state taxes, not because of its legality, but because of the bureaucracy involved. Com-plying with thousands of different state tax codes would be too cumbersome for merchants.
Congress hopes to avoid this complication by standardizing state laws. In 2005, Sen. Michael Enzi (R-Wyo.) and Sen. Byron Dorgan (D-N.D.), introduced a bill called the Sales Tax Fairness and Simplification Act. The bill included a set of codes that would simplify almost 7,500 state jurisdictions to allow merchants to collect tax from any state that adopted standards set by the bill.
The bill was unpopular in a Republican-dominated House, but 15 states adopted the standards and more than 1,000 merchants voluntarily signed up to col-lect taxes from the SSUTA states. The move resulted in almost $75 million in revenue for states. With elections coming up and a shift in party demographics, similar and more sweeping bills will be making their way to the floor for the sec-ond time.
The debate pits lobbyists against each other. Web sites like eBay and Ama-zon.com would face a drastic decrease in customer traffic if a law were put into place. Traditional retailers and state governments, on the other hand, support the idea; retailers would be able to compete evenly with online companies, and state governments would collect revenue.
In Massachusetts, a bill like the Enzi-Dorgan legislation would translate to $350 million this year. Opponents point out that even though there is an increase in revenue, collecting taxes on the Internet would "stifle the growth of online com-merce and weaken the economy," according to the Boston Globe.
For online customers, a sales tax implies the loss of income. Catherine Eng-land, a spokeswoman for eBay, pointed out that nearly 724,000 customers use eBay as either a primary or secondary source of income, which sometimes amounts to nearly $10 million. According to the IRS, any amount more than $400 in self-employment is eligible for taxation. Students who make profits on their text books, therefore, are obligated to report earnings as income.
The idea is not popular, especially since online shopping has become in-creasingly popular. But while internet tax legislation seems to be in the near future, any reform would have to involve bipartisan and interstate cooperation. If lawmak-ers were to consider an internet sales tax in the next session, they would be the seventh Congress to do so. All their efforts so far have not been successful, so there is no guarantee that the next bill will pass.
Sruthi Valluri can be reached at valluri@student.umass.edu
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