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Online Sales Tax or Internet Poker in 2012?

July 22nd, 2012 1 comment

Proponents of an online sales tax and of the legalization and regulation of internet poker received some intriguing news last week.

First, the possible federal online sales tax.

Amazon has recently reached agreements with several states to collect and remit sales tax on purchases in those states. One problem with this piecemeal approach, however, is that online retailers are stuck with the burdensome task of complying with each state’s different regime. Plus, not all states have entered into such agreements.

Last Thursday, Senate Majority Leader Harry Reid made remarks regarding possible online sales tax legislation, predicting it could pass this year, according to The Hill.

This WSJ piece provides additional background about the online sales tax issues and points of contention among lawmakers and lobbyists.

Second, internet poker.

Since the Department of Justice shifted its stance on the Wire Act last December, states have taken steps to legalize and regulate intrastate online gambling. Similar to the online sales tax issue, a state-by-state approach presents a variety of compliance obstacles for companies seeking to run internet poker websites licensed in the U.S.

The Las Vegas Review-Journal is reporting Senator Dean Heller (R-NV) is working to persuade fellow GOP lawmakers in Congress to support internet poker legislation. Senator Reid and Senator Kyl have reportedly agreed on a bill framework, although the bill hasn’t surfaced yet.

Reid has said he wants the internet poker sites run by Nevada gaming companies. This position has drawn the ire of Native American tribes and state lotteries, among other parties, who also want a piece of the action. In fact, this Thursday the U.S. Senate Committee on Indian Affairs will hold a hearing on the regulation of tribal gaming, to disuss both brick and mortar and internet gaming issues.

As for whether 2012 is the year legislation is passed in Congress, both issues face similar hurdles. Either bill would likely need to be attached to a legislative vehicle, and there aren’t many remaining. GOP support may be lacking as well. Of course, there’s always the lame duck session, but as The Hill notes, bigger ticket issues such as Bush-era tax rates and automatic spending cuts will likely dominate that agenda.

In the meantime, states will continue to address these issues as they please.

State of the Amazon: Update

April 29th, 2012 No comments

Last Wednesday I wrote a brief “State of the Amazon.” Between then and now, the piece became incomplete. It’s already time for an update.

Illinois:

In March 2011, the Main Street Fairness Act was passed. The law expanded the definition of “physical presence.” A seller is required to collect and remit sales tax only if it is deemed to have a physical presence within the state. The new law implicated affiliate companies, many of which earn commissions for directing web surfers to an online store.

The Chicago Tribune is reporting the Main Street Fairness Act was declared unconstitutional by Cook County Circuit Judge Robert Lopez Cepero last week. The interstate commerce clause of the U.S. Constitution limits who a state can tax, and the judge took the position the State of Illinois overstepped its authority.

I suspect the defendant, the Illinois Department of Revenue, will file an appeal if it hasn’t already.

Texas:

The Houston Chronicle is reporting the Lone Star State reached an agreement with Amazon on Friday for the online retail giant to begin collecting sales tax in the state on July 1. In addition, Amazon agreed “to create at least 2,500 new jobs in Texas over the next four years and make at least $200 million in capital investments in the state.”

All parties seem to be in support of some federal solution, but that doesn’t mean anything will get done. We’ll see.

More Amazon Sales Tax Agreements

April 25th, 2012 No comments

Amazon.com is currently the world’s largest online retailer. Many of Amazon’s products, if sold in brick and mortar locations, would be subject to sales tax in the state of sale. And it’s at least an arguable—if not compelling—case that those same products sold on the internet would be subject to sales tax in the state where the consumer sits.

Currently, Amazon.com collects sales tax in only five of 45 states that impose a sales tax. The five states: Kansas, Kentucky, New York, North Dakota, and Washington.

Many if not all of the other 40 states also want their share. Amazon has responded to such demands by threatening to end or actually ending relationships with local affiliates or by simply leaving a state.

Most recently, however, Amazon appears to be backing down. Within the past year Amazon has reached agreements with California, Indiana, South Carolina, and Tennessee to collect sales tax at a later date.

The Citizens for Tax Justice is reporting the latest developments, including an agreement with The Silver State:

  • In Nevada, Amazon.com will begin collecting sales taxes in 2014 under a new agreement announced on Monday. The company already has major warehouses and distribution centers in the state. Amazon’s agreement with Nevada is similar to deals struck in California, Indiana, South Carolina, Tennessee, and Virginia.
  • As in Nevada, Amazon’s deal to begin collecting sales taxes in Tennessee won’t take effect until 2014, but a lesser known part of that agreement has already taken effect. Amazon is mailing notices to all its Tennessee customers from throughout the past year letting them know that they may owe sales tax on the items they bought from the company, even though Amazon didn’t collect those taxes for them. Similar annual notices will be sent by February 1st in both 2013 and 2014.
  • The Massachusetts Main Street Fairness Coalition is continuing its calls for the state to require that Amazon collect sales taxes, and The Boston Globe just chimed in to support the idea as well. As the Globe explains, the company’s new offices in Massachusetts should be enough to bring the company within reach of the state’s sales tax collection laws.

This piecemeal process is far from ideal, but it’s progress. As far as a possible national solution, federal lawmakers are making efforts. But as everyone knows, controversial pieces of legislation on Capitol Hill are unlikely to gain significant traction during an election year.

The federal versus state debate in this context in some ways draws similarities to the debate on the legalization and regulation of internet gambling. Under both the sales tax and gambling tax regimes, the generated revenues end up in state coffers. Each state should reserve some significant powers to regulate these areas in the internet space to meet its own needs.

A federal bill that sets minimum standards and offers each state the flexibility for how to structure its own tax system sounds like a win-win to me. But again, that requires Congress to get something done. I’m not holding my breath.

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