Sales Tax and E-Commerce — Not a Simple Problem
In the age of e-commerce, sales taxes are a difficult problem. Currently, online retailers such as Amazon.com are under the same rule as mail-order sellers traditionally have been: they only have to collect sales tax from customers located in their state (or states in which they have a physical presence). Recently, this has gained greater attention due to several states passing measures to count affiliate program members (kickbacks for links on blogs, etc.) as a physical presence, so Amazon.com would be required to collect sales tax from customers in any state in which one of its affiliates resides. These affiliates are often private individuals and do no direct sales for Amazon — only referrals — but, in an effort to regain their tax base, states are wanting to see them as a physical presence.
I do not question that e-commerce is presenting significant problems for local economies. Money spent online does not stay in the local economy, and moving sales out-of-state does decrease the tax base for state income taxes. While most states require residents to pay sales tax themselves on out-of-state purchases, it is likely that few actually do so. Particularly in the present time of tight state budgets, this certainly isn’t helping matters.
It is tempting to just say, as many states are attempting to, that Amazon.com should collect sales tax sales to their residents. Citizens for Tax Justice recently published an article accusing Amazon.com of fostering tax evasion and calling the Supreme Court ruling instituting the current system “misguided”.
I think this is an overly simplistic analysis of the situation. There is a complex tangle of issues surrounding sales tax in the U.S., and placing local requirements on Internet-based sellers creates further problems that I think are likely to be worse than the current woes.