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taxes are due on mail-order and Internet purchases just as they
are on purchases in stores. But a large majority of the sales
taxes due on mail-order and Internet purchases made by individual
consumers and a significant share of the taxes due on purchases
made by businesses are effectively uncollectible. States and
localities are unable to collect these taxes because the Supreme
Court has prohibited states from requiring mail-order and Internet
merchants to charge the customer for the tax and remit it to the
customer's state unless the merchant has a physical presence or
"nexus" within the state's borders. If the seller does
not charge and remit the tax, laws require customers of Internet
and mail-order companies to pay the state and local sales tax
directly to their home states. However, compliance with this
self-remittance requirement is almost non-existent in the case of
individual consumers and is spotty in the case of businesses that
make purchases from Internet, mail-order, and other
Sales taxes account for one quarter of all tax revenues raised by states and localities to fund education, public safety, health, and many other essential services. The sales tax is a tax on the purchaser of goods and services, whether that purchaser is an individual or a business. In the case of purchases in a retail store, the sales tax is collected from the purchaser by the seller at the time of sale and periodically remitted by the seller to the state in which the sale occurred.
Amazon.com, the largest Internet seller, deliberately moved from New York to much smaller Washington State in part so that fewer of its customers would have to pay tax, according to an interview with Amazon founder Jeff Bezos in the magazine ''Fast Company.''
Allowing the taxation of e-commerce would jeopardize the growth of the new digital economy and hamper the ability of entrepreneurs across America,” said Wysocki, testifying on behalf of Kasich’s legislation. “The burdens that would be imposed are simply unacceptable
state and local government officials of both parties fear future
loss of revenue for such services as schools, roads and public
safety. Dallas Mayor Ron Kirk, another commission member, said
government officials would be forced to raise property or income
taxes, or depend on the federal government to make up the
Low-income consumers will pay a disproportionate share of state and local sales taxes. To purchase over the Internet, one needs a computer, an Internet account, and a credit card. Households with incomes over $75,000 are more than eight times as likely to have home Internet access as households with incomes between $10,000 and $15,000, according to the latest Commerce Department study .
Main Street retailers will be at risk of losing considerable business to remote sellers so long as they must add six to eight percent sales tax to their prices at the cash register while Internet and mail-order merchants can sell tax free. One study suggests that Internet vendors owe as much as 30 percent of their sales to this unfair tax advantage. This tax loophole threatens to cause serious financial problems for what is left of the independent, small-business sector.
The same computers that make it possible to bill credit card customers make it very easy to collect sales taxes. The National Governors' Association, whose states stand to lose billions, proposes to deputize credit card companies to compute the tax and send one combined check for taxes owed to each of the 45 states with sales taxes. You, the customer, would pay whatever sales tax applied in your state of residence.
PRO 9House Budget Committee Chairman John Kasich (R-OH) has introduced legislation banning state and local sales taxes on goods and services sold over the Internet. Kasich’s Internet Tax Elimination Act (H.R. 3252) also would make permanent the current moratorium on Internet access taxes and taxes levied on transactions solely because they involve e-commerce. “When it comes to the growth of business on-line,” said Kasich, “any talk about taxes is entirely out of line. “The explosive growth in e-commerce represents nothing short of a second Industrial Revolution. The biggest threat to this growth is the possibility of government treating the Internet like a cash cow.
State and local governments have no legal right to tax commercial activity that falls outside their jurisdictions. Congress should take prompt action to ensure that states and localities are not given a chance to impose taxes that will serve only to retard the growth and development of this crucially important communication medium. The Heritage Foundation