The Senate is planning to vote on a bill as soon as Monday that would give states the authority to collect sales taxes on all Internet purchases, handing local governments as much as $11 billion per year in added revenue that they are legally owed — but that hasn’t been paid to them for years.Since before the dawn of Internet shopping, the basic rule was that as long as a retailer didn’t have a physical presence in the state where the consumer was shopping, the company wouldn’t have to collect a sales tax. Technically, shoppers are supposed to track these purchases and then pay the taxes owed in their annual tax filings. Few people, however, do this or are even aware of it.
The result: Online retailers have been able to undercut the prices of their non-Internet competitors for years. Over time, shoppers learned that they could browse products in the aisles of a Best Buy, only to click “purchase” on their smartphones for a tax-free deal from an Internet retailer.
As states have become more strapped for cash since the recession, local officials have fought back. New York passed an “Amazon tax” in 2008 that forced the giant online retailer to collect sales taxes from shoppers who live in the state, even though Amazon didn’t have a brick-and-mortar presence there.