Should States Be Able to Collect Sales Tax on Goods Sold Online?

Congress is debating legislation which would require online retailers to collect sales tax. Currently, online sellers are not required to charge their customers a sales tax on items purchased online.

Proponents of the Marketplace Fairness Act say online tax rules are outdated, and the spread of Internet sales requires a leveling of the playing field between online retailers and brick-and-mortar businesses. Customers are required to pay sales taxes when they purchase items in a store and, in some states, online businesses can have as much as a 10 percent price advantage over other businesses because they don't collect sales tax. This can deter consumers from shopping locally because it is simply cheaper to order online. The law would allow states to collect their sales tax rates for online and catalogue sales outside state borders, allowing them to bring in additional revenue that would aid budget-strapped states in filling in their deficits.

Others argue that it unfairly requires online retailers to become tax collectors, and takes away the power of states to regulate their own sales taxes. States like New Hampshire, which don't collect a sales tax, say forcing retailers to collect sales tax would disrupt their state economy. Enforcing the tax collection would unfairly overwhelm businesses with compliance, administrative, and legal costs, putting them at a disadvantage. They also say that small businesses could be negatively impacted despite the fact that online retailers with sales less than $500,000 would be exempt from collecting the sales tax.