The Internet Tax Man Cometh Again

Like most good Americans, you probably do not calculate and pay every April the taxes you owe on your Amazon purchases for the past year. Almost no one does, which upsets state officials who see online sales as a potential source of tax revenue.

House Reps. Jackie Speier (D-Calif.) and Steve Womack (R-Ark.) hope to authorize states to collect taxes from online sales with the Marketplace Equity Act, Congress's latest attempt to compel Internet retailers to collect taxes in states where they have no physical presence. State budget shortfalls have fueled the Internet tax craze—in July, Sen. Dick Durbin (D-Ill.) introduced a similar act with a similar name, the Main Street Fairness Act.

Either law would contradict Supreme Court precedent that mail-order catalogs and other remote businesses only have to collect taxes in states where they have a physical "nexus"—a warehouse or an office, for instance. And it's not clear why a company in Oregon, say, should be burdened with the costly proposition of collecting taxes for every other state and sorting through 49 other tax codes.

States have been trying to find a way to tax online retailers for years, but an "Amazon tax" could backfire. States have argued that "affiliates," or partner vendors, merit a taxable connection to a given state. Amazon and Overstock have cut ties with affiliates in various states that threatened to use the affiliate connection to make retailers collect taxes.

The Marketplace Equity Act gives states the flexibility to create their own collection systems, which pleased Betty Yee, a member of California's Board of Equalization interviewed by Politico. This is the same Betty Yee who told The New York Times back in March that the only way for states to close their enormous budget gaps was to collect taxes from online sales, an asinine statement considering such tax collection would account for "less than three-tenths of one percent of state and local tax revenues."

Veronique de Rugy recently outlined the ins, outs, and what-have-yous of internet taxation for Reason. She and her Mercatus Center colleague Adam Thierer propose a much better solution than any Congress members have so far: an "origin based" collection scheme.