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ECommerceTimes.com

The Politics of Taxing E-Commerce, Part 1

By David Vranicar
Nov 18, 2011 5:00 AM PT

A recent wave of legislation has given new life to the issue of e-commerce taxes.

The Politics of Taxing E-Commerce, Part 1

In Part I of this two-part podcast, Extreme Tech's David Cardinal talks about some of the nuances of e-commerce taxes.

In what ways are the collection of these taxes problematic? What are online and offline retailers saying about the issue? And what might come of current efforts to remedy what some think is a broken system?


Listen to the podcast (16:59 minutes).

Here are some excerpts:

The E-Commerce Times: Today we're going to talk with David Cardinal, who is a writer for Extreme Tech, and we're going to be chatting with David about e-commerce taxes, which is something that he's been covering over at Extreme Tech. David, thanks a lot for taking the time to chat, I appreciate it.

David Cardinal: Absolutely, happy to help.

ECT: Let me ask you first off what the current situation is when it comes to collecting taxes on online purchases. It seems like there are a lot of nuances from state to state and from item to item, so what is the current situation when it comes to online purchases?

Cardinal:: The problem pre-dates online. It goes back to mail order and phone order, or even Home Shopping Network or whatever -- any time you're buying a product from a vendor who's not in your state.

States are not allowed to regulate interstate commerce, so they are not allowed to charge sales tax on products from out-of-state vendors as long as that vendor does not have a place of business in the state. So as a result, if you buy a product from, say, Amazon, and you live in one of the 45 states where Amazon doesn't have a physical warehouse or headquarters, they don't charge you your state's sales tax.

Obviously this does a couple things. First off, it deprives the states of revenue they might otherwise get, and it also gives a pricing advantage to many online retailers compared to the so-called bricks and mortar stores. ...

In theory, the customer is supposed to remember that purchase, and at the end of the year when they file their income tax, states have a piece of the income tax where you're supposed to report your out-of-state purchases and pay the sales tax. And to say the least, this doesn't work very well. Most taxpayers don't even know about this -- or claim they don't know about this -- and the ones who do know about this skip.

ECT: It seems easy to evade.

Cardinal:: Yes, it's very easy to evade, and the lost revenue is substantial. So for example in my state, California, they decided they were losing several hundred million dollars a year in sales tax because people were buying from out-of-state either deliberately to avoid the sales tax or just because it was easier to buy that way. And so California, like about a dozen other states, passed a law that says the out-of-state vendors would have to collect that sales tax even if they had an indirect presence in the state. ...

And that was partially at the urging of the Best Buys and Wal-Marts and other brick and mortar stores that said, "Hey, we're collecting taxes so why shouldn't they have to? Why penalize us? We're actually providing you with local jobs, we're in the community and here we are at a competitive disadvantage."


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