In November 2001, Congress extended for two years a moratorium
on internet access taxes. Those are the fees consumers pay to ISPs.
But the legislation does not apply to the collection of sales and
use taxes.
Contrary to popular belief, the internet is not a tax-free zone
in the US. On-line transactions are meant to be taxed; the problem
is that most customers don't know they're supposed to pay them and
states lack an effective enforcement mechanism to collect them.
In 1992, the US Supreme Court ruled that states can't force
retailers without a physical presence in the consumer's state to
collect sales taxes. The court reasoned that the patchwork of
roughly 7,500 taxing jurisdictions across the country is too
complex and burdensome for on-line retailers. In order to collect
sales taxes, the court ruled, states would need to first simplify
the existing system. And this is now on the cards.
The Streamlined Sales Tax Agreement, signed on Tuesday, will now
go to each state, which must enact legislation to bring their state
and local tax laws into conformity with its provisions. It will
become operable as soon as 10 states enact legislation.
The Agreement would establish uniform definitions for taxable
goods and would require participating states and local governments
to have only one statewide tax rate for each type of product,
effective 2006.
State governments argue that implementation of the agreement
would create a level playing field between "remote" sellers which
are not obligated to collect and remit sales taxes and high street
retailers, which must collect sales taxes. E-tailers argue that the
playing field is already levelled by their need to charge delivery
costs.
The current sales and use tax system in the US, with 7,500 state
and local taxing jurisdictions across the nation, is antiquated,
complex, and cumbersome to businesses. One of the problems with so
many taxing jurisdictions is that they often have different laws or
definitions of what is taxable. For example, a marshmallow might be
defined as a food in one state, but as "candy" - and therefore not
taxed - in the next.
That arrangement makes it very difficult for "remote" retailers,
such as mail order companies and e-commerce companies, to
calculate, collect, and remit sales taxes at varying rates to
different state and local governments.
While a simplified system could save many businesses millions of
dollars in efficiencies by removing the burden of complying with
existing laws, rules and regulations in thousands of jurisdictions,
the e-tailers are less enthusiastic.
