5:00pm February 27, 2012

Who Gets Online Sales Tax Revenue?


While analysts predict that online retail sites like Amazon are expected to enjoy growth rates of as much as 20% per year, bricks and mortar stores, including small businesses, can expect annual growth rates to decline to as little as 2.1%. Those of us who already have access to broadband know what a convenience it is to buy goods online, both in terms of the lower prices offered by online retailers and the ability to shop online without having to spend time walking or driving to several different stores looking for the right item.  But Congress is considering legislation that will not only make shopping online more expensive, but could also generate tax revenues that will benefit the wealthiest Americans.

Since 1992, cash-strapped states and local governments and businesses have been lobbying Congress to pass legislation authorizing states to collect online sales taxes from remote sellers.  That year, the Supreme Court held in Quill Corp. v. North Dakota that online retailers are not required to collect state sales taxes from consumers in states where the online retailers do not maintain a “physical presence.”  But this opinion explicitly left it up to Congress to enact legislation to permit states to collect taxes from such remote retailers.

Momentum is building for Congress to follow suit and enact legislation.  The bi-partisan Marketplace Fairness Act (MFA) would allow states to collect sales taxes from sellers without a physical presence in the state where the consumer has initiated the transaction.  Under the MFA, states will be permitted to collect these taxes provided that they agree to the multistate, Streamlined Sales and Use Tax Agreement (SSUTA), which 44 states, the District of Columbia, local governments and the business community have already agreed to.  States that have not agreed to SSUTA may collect state taxes from remote sellers if they agree to implement a minimum set of requirements set out by the MFA.

By exempting small online retailers with annual revenues of less than $500,000, the MFA does good things for smaller outfits competing against behemoths like Amazon and E-Bay.  But the effect of the MFA on low-income consumers is less clear.

Proponents of the MFA argue that not collecting such taxes amounts to a regressive tax regime in which only those with access to the Internet are able to take advantage of the lower prices offered by online retailers.  The MFA, they argue, levels the playing field by ensuring that online consumers pay the same taxes on goods as consumers who are forced to purchase the same goods from local establishments.  This line of reasoning neglects to consider low-income consumers who do have access to broadband.  Authorizing states to tax online purchases from sellers outside of the state would harm low-income consumers both by increasing prices and resulting in state revenues that do not inure to the benefit of the consumers in the states where online retailers maintain a physical presence.

Before enacting the MFA, Congress should fully consider the effects of the tax on low-income consumers.  Specifically, Congress should consider whether the states in which online retailers tend to maintain a physical presence have a lower or higher tax base than the states where consumers most often initiate online transactions.  Congress should then consider how each state allocates sales tax revenues once they are received. If proponents of the MFA are correct in asserting that most online purchases are made by consumers from upper-income tax brackets, taxing transactions according to rates established in the affluent areas where these consumers live would ostensibly benefit areas that are least in need of revenue.

About the Author

Joseph Miller
Joseph Miller
Joseph Miller, Esq. is Deputy Director and Senior Policy Director of the Media and Technology Institute at the Joint Center for Political Studies.



E-Commerce sites follow Walmart’s lead in banning sale of Confederate flag items

On Tuesday, a handful of large e-commerce websites announced that they would ban the sale of Confederate flag items. Walmart had announced that it would ban the sale of Confederate flags on Monday. Ebay, Amazon, and Etsy follow...
by Adriana Maestas


Congress Moving Toward Action on Net Neutrality

In less than one week the Federal Communications Commission is expected to release its new net neutrality rules.  Over the past year, yet another round of protracted and contentious debate has unfolded around the best means to...
by Kristal High

Screen Shot 2015-02-27 at 9.49.43 AM

Black Buying Power Does Not Translate to Silicon Valley Hiring Practices

There are 43 million African Americans in the United States, and by next year black buying power is expected to reach $1.1 trillion. In an Atlanta Black Star article, “5 Industries Black People Should Dominate Based On Our C...
by Politic365 Staff



Convergence, Competition, and Consumer Protection Should Dictate Communications Policy

Convergence is the hallmark of the modern communications marketplace.  It may have made sense to view and regulate various communications platforms as distinct silos back in 1996, but today the realities of this industry are f...
by Kristal High


What America’s Telecommunications Leaders Can Teach Silicon Valley

Silicon Valley is the leading hub for high-tech innovation and development in the United States, while remaining highly competitive among the world’s most revered high-tech economic centers. Venture capital investment is stil...
by Kristal High



Be the first to comment!

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>