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April 27, 2011

Internet Sales Tax -- Coming Sooner Than You May Think

If something called the "Main Street Fairness Act" clears Congress, the days of sales tax-free Internet commerce may be numbered.

U.S. Senator Dick Durbin (D-Illinois) plans to introduce the bill, we hear, shortly after the Easter recess.

"Why should out-of-state companies that sell their products online have an unfair advantage over Main Street bricks-and-mortar businesses?" queried Durbin recently in a speech. "Out-of-state compaines that aren't paying their fair share of taxes are sticking Illinois residents and businesses with the tab."

But we hear that the Direct Marketing Association (DMA), not surprisingly, takes a dim view of Durbin's idea. "You're just giving the states a blank check to make changes without any congressional oversight," says Jerry Cerasale, DMA's senior vice president for government affairs. "We oppose that.....We think that's abrogating the authority of Congress."

So far, nobody has been able to quite figure out just what to do with the Internet from a sales and use tax standpoint. (Check out Nolo's article Sales Tax and the Internet for more info.) And that's just the way the NetChoice Colalition likes it. The Coalition says, "Internet access -- and its concomitant ability to communicate, educate, and telework -- should not be taxed. At a time when most people agree that the U.S. needs more broadband, Internet access taxes will slow broadband deployment, particularly in rural and low-density areas. Fewer consumers will buy a higher-priced taxed product. A smaller pool of potential customers means providers can't justify investment in new broadband infrastructure build-out......NetChoice endorses a permanent tax moratorium to encourage continued innovation on the 'Net'."

The big boys of retailing, however, would likely support Durbin's proposal. Why wouldn't they -- their bricks-and-mortar presence is increasingly ubiquitous.

But as NetChoice points out, "The 'Internet' is not a specific place or thing, but a network of networks that transcend geographic and political borders." A virtual entity. And who's in charge of taxing that?