An Internet sales tax is inching its way closer to being the law of the land: The U.S. Senate supported a non-binding vote of approval, 75-to-24, for a law that would allow states to collect taxes from Internet retailers. If enacted as is, it would allow states to levy taxes on some online retail purchases from businesses with over $1 million in gross receipts.
Internet retailers can thank their mostly tax-free existence to a 1992 Supreme Court Case, Quill Corp. v. North Dakota, which declared that companies without a “substantial nexus” in a state didn’t have to pay sales tax. “Quill became a seminal case for online retailers: It meant, in essence, that they didn’t have to pay state and local sales taxes,” writes the Washington Post’s Ezra Klein.” That’s allowed them to undercut traditional brick-and-mortar stores on price. It’s also meant that state and local governments, which rely heavily on sales taxes, have lost enormous amounts of revenue as more and more commerce has moved online.”
There are some exceptions: Amazon currently charges California residents sales tax, and will soon charge residents of Massachusetts and Connecticut, after new offices and acquisitions gave it a significant presence in those states.
A score of Internet lobbies, such as Netchoice, representing Facebook, Yahoo, and (TechCrunch’s parent company) Aol, argue that the senate’s bill “does nothing to address what the Supreme Court says was an unreasonable burden on interstate commerce,” explains Steve Delbianco of Netchoice.