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Commentary: Taxing E-commerce

Posted on 7.31.2008
One of the allures of shopping online is shopping tax-free. That’s about to change.

The government has had its sights on ecommerce tax revenues for many years. In the past, as long as a retailer did not have a physical presence in a shopper's state, retailers were not forced to collect sales tax. But with a slumping economy (depending on who you ask) states are considering adapting their rules as to what an online business presence actually implies — thereby widening the net of collectable taxes.

In May, New York State took the initiative by rewriting laws to define affiliates of merchants as a legitimate business presence. That means retailers selling to New Yorkers are expected to collect sales tax, even if their physical operations are in California. One such retailer is Amazon.com, who is challenging the New York law. If they lose, expect other states to follow the New York example.

Will this new development slow down the e-commerce industry? Probably not in its entirety, but it will definitely force some substantial restructuring already in progress
with some major online retailers.

Amazon (thanks to its successful Amazon Associates program) is now charging sales tax to shoppers who live in New York State to make the proper tax accommodations, even though the retailer maintains no physical operations there. And many merchants have considered ceasing operations with affiliates in New
York State altogether to delay the inevitable. Online retail giant Overstock.com is one of them. On the other end, some companies like Sears, Circuit City and Home Depot have collected sales tax online for years and will not be impacted.

Companies that registered with the New York Tax Department and started collecting the sales tax by June 1 are not liable for past taxes. But by not registering,
many merchants set themselves up for a big tax liability on past sales. While they may have avoided the issue temporarily, merchants are not out of the woods just yet.
 
Already, states feel compelled to devise ways to collect taxes from Internet retailers so they can generate much-needed state revenue. They will use the argument that they
have been subsidizing state economies for years by allowing them to conduct business unencumbered by sales tax, and that by collecting sales tax, local companies will be on even footing with large Internet retailers — effectively narrowing the price advantage Internet shoppers enjoy by making their purchases online.

Does this mean shoppers will flock to their local retailers because they are being charged sales tax on Internet purchases? It’s not likely. Twenty-four hour convenience and deep product availability are other value propositions that local retailers simply can’t match.

However, Internet taxation will bring new challenges and put a significant burden on online retailers of all sizes, including many Website Magazine readers. Right now
in Congress, lawmakers are considering sales tax legislation that would require consumers to pay sales tax on everything they buy via the Internet, from retailers anywhere
in the U.S. — not just retailers in their own state. This could require retailers to collect and remit sales taxes with up to 7,500 different taxing jurisdictions. Does that sound like a headache? You bet. And many feel it’s unjust.

No matter where you sit on the issue, it’s a good idea to check into some emerging solutions. Web-based sales tax software is readily available to make the process easier. Also, many e-commerce shopping cart solutions already include the capability to connect the retailer’s shopping cart directly with a continuously updated database of accurate sales tax rates.

So get ready, be prepared and get back to business. The Internet doesn’t slow down and neither should you.

Do your part! Visit http://www.congressmerge.com/, find your representative and tell him or her that you won't stand for unfair taxation! And while you're at it — tell them Website Magazine sent you.

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