This week, the Senate is considering a bill that would give states the ability to require large Internet retailers like Amazon to collect sales taxes on all purchases and send the revenue to the appropriate locality. The bill could raise as much as $11 billion in uncollected taxes.A vote could come as early as 5:30 p.m. Monday.
My colleague Jia Lynn Yang has an excellent rundown of the battle over this bill in the Senate. But here’s a primer on the key parts of the legislation.
What’s the current Internet sales tax situation? Right now, state and local taxes are technically due on most things we buy online. If an item would be taxable in a local store, then it’s taxable when you buy it online.
But in practice, very few people actually pay online sales taxes. And there’s a reason. Thanks to a 1992 Supreme Court ruling, Internet and catalog retailers don’t have to charge local sales taxes to a customer so long as they don’t have a “physical presence” in the customer’s state. Buyers are supposed to just pay the tax directly to the state. And that rarely happens. (Raise your hand if you even realized this was required.) In California, residents paid only 1.4 percent of online “use tax” owed in 2011.
What are the effects of the current tax regime? According to a 2009 study by three University of Tennessee researchers, states and localities lose out on about $11 billion worth of tax revenue each year because of these rules. (This study does have its critics, however.)