Would you shop less online if you had to pay sales tax at the point of purchase? This may happen if the Marketplace Fairness Act, a.k.a. the “Internet Sales Tax,” is passed. On May 6, 2013, the Senate passed the Marketplace Fairness Act of 2013. The legislation has now moved on to the House of Representatives for consideration. 

The Marketplace Fairness Act requires online retailers netting more than $1 million annually across all states to collect sales tax from customers in states with sales tax even if the retailer has no substantial physical presence there. Under a 1992 Supreme Court ruling, Quill Corp. v. North Dakota, Internet retailers do not have to collect sales tax from customers where the retailer has no major physical operation. Currently, consumers are supposed to report online purchases in their annual tax filings, but few actually report. Thus, states lose an estimated $11 billion every year.

The bill was introduced into the Senate in order to put all businesses on a level playing field. Out-of-state online catalog retailers operate within different states, but they do not have to follow the same laws as other business, namely the collection of sales tax on purchases. Interestingly, Amazon is in favor of the bill, while eBay is fighting for some changes. Amazon has been expanding its business into new states in order to enable its same day delivery service. Thus, it has to pay sales tax in several new states even under the current regime. eBay, on the other hand, wants the small business exemption to be expanded to cover online businesses selling less than $10 million annually and employing fewer than 50 people. It wants better protection for small businesses that use the Internet.

What do you think? Will you continue to buy online if the Act is passed?

–Sonal Patel

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One Response to Internet Sales Tax Likely to Decrease Sales?

  1. Brooke McLeod says:

    I’m surprised it has taken so long for retailers to pursue this type of law. I’m not sure this will affect the majority of consumers’ buying habits, who likely buy online for convenience not for price, but it likely will affect sales at the margin. I know several law students who prefer buying online because it ends up being substantially cheaper than buying in Tennessee where the sales tax is so high. Thus, these students would likely change their buying habits if they were forced to pay tax on their online purchases.