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The Wall Street Journal reported over the weekend that the days of being sales-tax-free may be winding down for online retailers such as and as a number of states consider legislation that could require them to collect sales taxes if they have affiliates or distribution facilities in those states.

In North Carolina, for example, officials believe that their efforts could result in the collection of up to $20 million in taxes – which would be a financial boon even in good times, but would be something of a windfall during tough economic times when tax revenues are down and states are taking a hard look at their programs and expenses.

According to the Journal story, “An effort by some states and retailers to streamline sales tax laws eventually could be used to force e-commerce companies to collect tax in 20 states. Congress has considered bills that would allow states that meet certain uniformity and simplification standards in their tax systems to demand that out of-state sellers collect sales taxes.

“These new battle lines are being drawn just as the dust settles on the latest confrontations. Over the past month, lawmakers in New York, Rhode Island, North Carolina and Hawaii passed legislation that would force e-commerce companies to collect sales tax if they have in-state online-marketing affiliates, people who get a commission from sales via their Web sites or blogs. The states argue that that those affiliates amount to sales agents with a physical presence, while e-commerce companies say they're more akin to advertising channels. To avoid getting caught by the new laws, Amazon, Overstock, Blue Nile Inc. and others dropped or threatened to drop affiliates in some states.”

The governors of California and Hawaii have either vetoed or threatened to veto legislation that would require the collection of online sales taxes, saying that such moves would hurt the affiliates, which are, in the end, local businesses; the Journal notes that other states, including Maryland, Minnesota and Tennessee, also have decided not to pursue sales tax collection initiatives for fear of hurting local affiliates.
KC's View:
I have to admit to being conflicted about this one. On the one hand, I benefit greatly by the fact that I do a large percentage of my shopping online, and do not pay sales taxes on those items acquired in this fashion. But I also recognize that if I were buying products from local retailers, I would be paying those taxes…which puts the local guys at something of a disadvantage. On the other hand, local retailers don't have to deal with shipping charges…so maybe it all balances out.

In the interest of fairness, the issue deserves consideration. I’ve concluded that there is virtually no case in which I can remember buying a product online specifically for the purpose of avoiding sales taxes – I buy things online because it generally is more convenient, the selection is better, the prices sharper and the customer service often is superior. Would I stop making such purchases if sales tax were added? In all honesty, probably not…unless the costs became onerous. Would retailers such as Amazon stop offering significant discounts on many of their offerings if a sales tax were added? I’m guessing not…but there could be something in here that I’m not getting.

The legal issues are for others to resolve; I haven't the foggiest idea whether the efforts by states such as North Carolina and Texas are constitutional or not.

I want to be fair to all parties, but I also don't want to do anything that would damage the Internet shopping business. That’s not just because I use it a lot, but also because it is in many ways the future…and deserves to be nurtured as much as possible.