NCPA - National Center for Policy Analysis

Momentum Growing for Sales Taxes on Online Purchases

February 10, 2012

Attention, online shoppers.  The days of tax-free online shopping may be coming to an end.  More than a dozen states have enacted legislation or rules to force online retailers to collect sales taxes on purchases, according to tax publisher CCH.  Similar legislation is pending in 10 states, says USA Today.

Below are the main drivers behind the push for such legislation:

Budget shortfalls.

  • The National Conference of State Legislatures estimates that uncollected state sales taxes will cost states $23 billion this year.
  • Residents of sales-tax states are supposed to pay taxes on online purchases, but because retailers don't collect them, they rarely do.

Heavy lobbying from retailers.

  • Retailers have long argued that exempting online purchases from sales taxes gives online retailers an unfair advantage over brick-and-mortar stores.
  • The pressure escalated in December after Amazon offered customers a one-day 5 percent discount if they used its Price Check app to make a purchase while in a physical store.


  • Legislation has been introduced in the House and Senate that would give states broad authority to require online retailers to collect state sales taxes, as long as they streamline the collection process.
  • Despite bipartisan support, though, the bill has languished in Congress.

In 1992, the Supreme Court ruled that states couldn't require retailers to collect sales taxes unless the retailers had a physical presence in the state.  Increasingly, though, states have interpreted that requirement to include subsidiaries or affiliates of online retailers, or online retailers with a warehouse or distribution center in the state.

Critics say the measures would force online retailers to collect sales taxes in dozens of states and jurisdictions, with different rates and definitions of which products are taxable.  The administrative burden would be particularly difficult for small businesses that sell their products online.

Source: Sandra Block, "Momentum Growing for Sales Taxes on Online Purchases," USA Today, February 9, 2012.

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