Internet taxes: Is the inevitable about to happen?

Some things never happen the way that us pundits expect. Back on Independence Day in 1999 I wrote this about government taxing the purchase of goods over the Internet: "I fully believe in the ingenuity of the government when it comes to imposing taxes. We will be paying these taxes soon." Well, "soon" has not happened yet, but maybe it is getting closer.

I also wrote about Internet taxation in 2003, in particular about an effort to deal with the impossibly complex landscape of local taxes.

Considering the "Main Street" pressure from local merchants trying to compete with Amazon there was no way that I would have predicted in 1999 that Internet retailers would still not be required to collect sales taxes. The problems I talked about in 1999 are still with us and just as hard to solve. In addition, the sales tax shortfall in 2012 is not as large as was predicted back in 1999. Eleven billion dollars is real money, but it's small potatoes when it comes to the $790 billion in total sales tax revenue for 2012. But governments like tax revenues even when they are relatively small amounts of money.

[ BACKGROUND: Debate rages over contentious Internet sales tax proposal ]

Despite a vote being delayed into May, the U.S. Senate seems headed toward passing a bill claiming to "restore States' sovereign rights to enforce State and local sales and use tax laws, and for other purposes." The bill is quite short as such documents go these days and gets to the point quickly. It says that each qualifying state "is authorized to require all sellers not qualifying for the small seller exception described in subsection (c) to collect and remit sales and use taxes with respect to remote sales sourced to that Member State." (The "small seller exception" applies to Internet vendors with less than $1 million in annual sales.)

The bill only applies to states that have joined in the Streamlined Sales and Use Tax Agreement or that enact legislation to meet the same goals.

The bill does address one of the issues I wrote about in 1999. It defines "sourced to" (i.e., the state that can demand to get the sales tax revenue) to mean what is defined in section 310 of the Streamlined Sales and Use Tax Agreement or, if the state is not a member of that club, "the location where the item sold is received by the purchaser, based on the location indicated by instructions for delivery that the purchaser furnishes to the seller. When no delivery location is specified, the remote sale is sourced to the customer's address that is either known to the seller or, if not known, obtained by the seller during the consummation of the transaction, including the address of the customer's payment instrument if no other address is available. If an address is unknown and a billing address cannot be obtained, the remote sale is sourced to the address of the seller from which the remote sale was made." This seems to say that post office box forwarding companies located in states with low or no sales tax are going to see an increase in customers.

The Washington pundits seem to think that this bill may not make it through the tax-avoiding House. But I will say again, "I fully believe in the ingenuity of the government when it comes to imposing taxes. We will be paying these taxes soon." I will be right some day.

Disclaimer: Harvard itself is exempt when it comes to many sales taxes, so unless something more drastic changes, I expect the university will have no opinion on the possibility of Internet sales taxes. But even if it does I have no way to know what it might be, so the above repeated opinion is mine alone.

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This story, "Internet taxes: Is the inevitable about to happen?" was originally published by Network World.

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