Internet Taxation

Powerful Essays
Internet Taxation

The advent and expansion of the Internet have brought the issue of the application of state and local sales taxation to Internet, telephone, catalog, and other "remote sales" to the forefront of the policy debate. Under current law, states cannot require corporations without a substantial presence within their borders to collect and remit sales taxes. While all states do require residents to remit the taxes owed in the form of use tax payments, few people send in use tax forms, rendering remote sales essentially tax-free. The revenue loss due to the lack of taxation on Internet sales has been minimal thus far; however, states are concerned that the growth of the Internet will lead to a substantial drain on revenue. After extensive research and consideration, the committee recommends against implementing a tax on Internet sales transactions. Reasons are discussed below.


In 1999, the National Conference of State Legislatures (NCSL) and the National Governors Association tasked state revenue departments with the responsibility of evaluating the sales-tax system, as it existed at that time and to radically simplify the system (Field, 2005). Online retailers have long fought against such moves. They have done so both because of the aforementioned complexity of the various states tax codes and because whichever company would first require its customers to pay sales taxes would face a competitive disadvantage (eWeek, 2003).

According to ( )"Both sides in this debate point to a pivotal U.S. Supreme Court decision in 1992, which essentially said that states cannot force businesses to collect sales tax...

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...e of forcing an online retailer to determine the applicable sales tax rates and tax classifications for every local jurisdiction of every state. (Baudier, 2006, para 2).

Non-Economic Reasons

Finally, there are good non-economic reasons not to grant the state new tax authority. Most obviously, out-of-state retailers don't benefit from government spending in the same way that local businesses do, and worse, they have no way to influence the political process in distant jurisdictions. Forcible tax collection for distant governments is "taxation without representation," and is manifestly unfair.
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