Is the Tax-Free Era Over for Online Shopping?

Tucked into a Times report about a typically out-of-touch New York State budget crafted by the wizards of Albany comes this news:

Another $50 million [of state revenue] will come from requiring online retailers like Amazon that do not have a physical presence in New York to collect sales taxes on purchases made by New Yorkers and remit them to the state.

Is this the beginning of the end for tax-free Internet shopping?

There have been a lot of arguments over the years about why online merchants should not collect sales tax, many of them not very compelling.

Imagine how hard it is to be a brick-and-mortar shoe store, for instance, when your online competitors not only don’t have the brick-and-mortar costs to contend with but also don’t have to collect sales tax from customers.

The online sales tax debate has been heating up for some time now. Does New York’s move perhaps mark a tipping point?


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  1. Larry Roth says:

    I do not think New York’s action marks a tipping point here. A number of states have tried before to force online sellers with no physical connection collect tax on orders made by their residents. The US Supreme Court stopped those attempts, most recently in its 1992 decision in Quill Corporation v. North Dakota. When this statute is challenged, it will almost certainly be struck down.

    Since then many states have resumed this effort, even going so far as to lessen the appalling complexity and state-to-state variation of the sales/use tax laws, thus depriving the online sellers of one of their best arguments against such assessments.

    The Supreme Court made it clear in Quill that it was up to Congress to make a decision in this area. So far Congress hasn’t even come close to passing a statute authorizing states to force online resellers with no physical presence in the state to collect these taxes on behalf of the state.

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  2. doug, ct says:

    state of CT has similar measures in their legislature

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  3. Tim says:

    I run a sporting goods online shop, and I can tell you there is no way I will be collecting NY state sales tax anytime soon, no matter what the NY legislature does. I’m based in Georgia and have no offices, warehouses, or any other connection to NY state.

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  4. Justin says:

    Going along with comment #3, how could NY possibly have any jurisdiction to make Amazon, or any other online retailer not in NY, collect their taxes?

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  5. DJH says:

    As mentioned in comment #2 (Doug, CT), my home state of CT, in fact, DOES tax items sold over the Internet. This can happen in two ways:

    1. Any company which has a physical presence in CT must collect sales tax as part of the sale itself. This is just the same as buying something over the counter and paying tax at that time.

    2. When the seller has no presence in CT, it’s not up to the seller to collect the tax; it’s up to the buyer in CT to pony it up voluntarily. This is known as a “use tax” (as opposed to “sales tax”).

    The “use tax” covers the same things and has the same exceptions, and is the same rate as the “sales tax.” So if you buy food online which would not be sales-taxed, no use tax is owed either. It’s up to the buyer to know whether or not the item is taxable, and pay the use tax him/herself.

    Of course, most of CT’s buyers never actually pony up the use tax … but that does not mean they don’t owe it.

    The problem for CT’s Dept of Revenue Services is that they have few means of detecting these sales and going after those who don’t pay them. Every once in a while, DRS agents will follow cars with CT license plates out of liquor stores in MA, back over the state line in CT, where state troopers pull them over, and they’re cited for not paying use tax. (I’m not sure of the legitimacy of this tactic, though, because as I understand it, a buyer has a “grace period” during which s/he must pay the use tax — a grace period which I assume is a little longer than 5 seconds after one enters CT! But I also assume the troopers and DRS don’t really care much about little things like that.)

    At any rate, CT definitely DOES tax online sales. They just can’t compel sellers with no CT presence to collect it for them. The same is likely true of many other states and jurisdictions as well.

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  6. Idea Guy says:

    Seems like a lost revenue source for the states. And one that is only increasing every year.

    And it’s crazy to think that the states won’t have to raise other taxes in order to offset these losses. We need to be responsible & start paying taxes on internet sales.

    I think the best way to do it is for the federal government to step in & create a federal internet sales tax. Keep it low, around 3%. After deducting operation costs, the feds would keep 10% & then dispurse the remaining 90% to the states, proportionally based on population. Use of a portion of the funds could even be earmarked for SBA loans, and other small business initiatives to help both brick & mortar stores & online stores.

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  7. david g says:

    “Imagine how hard it is to be a brick-and-mortar shoe store, for instance, when your online competitors not only don’t have the brick-and-mortar costs to contend with…”

    How is this relevant? This is the same protectionist argument that many make in favor of raising trade tariffs. If amazon can do something more efficiently than the old brick and mortar store, why should Amazon we want to interfere with that?

    If the free market decides that the convenience of instant shoe purchasing is worth a premium, then great… but let’s not feel sorry for brick and mortar stores.

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  8. Panem et Circanses says:

    They can drool all they want to about collecting big bucks from Amazon et al., but for every Amazon there are thousands of tiny companies, on which the state, after considering administrative costs, would lose money processing their payments. A lose-lose… not to mention the legality and constitutionality.

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