The US Senate Just Passed That Internet Sales Tax Bill

lawhawk5/06/2013 7:15:23 pm PDT

This is one of the most misunderstood bills to come down the pike in a long time. The bill doesn’t impose any new taxes. It clears the way for states to collect the taxes already owed them but which most everyone ignores because the onus is on the purchaser to remit the tax.

Some states already attempt to collect the tax via their income tax returns. Others hope for voluntary remission and compliance, but for the most part states are owed use tax on sales made by their residents/in-state businesses on purchases made out of state.

Quill and Complete Auto Transit in particular both limited how the states could move to collect the tax on out-of-state sellers, but the Supreme Court in Quill also indicated that Congress should act to clean up the mess - that Congress could establish a clear nexus standard and require collection of use tax online. Up til now, the main arguments against was that it was prohibitively difficult to figure out the tax rates for the thousands of state and local jurisdictions. But with the advent of the Streamlined Sales Tax Agreement, member states have clarified that their state tax departments are the single entity responsible for collecting the tax, rates are identified on a regular periodic basis (quarterly, biannually, or annually) and that databases are kept to identify the rates.

It’s the databases that make this key. The states have to maintain the databases.

But all of this wont stop some folks from saying that this is a tax hike or tax grab. States that would realize a revenue gain from this could and should reduce the overall tax rate - since they’re generating more revenue than previously but don’t count on rate reductions anytime soon. The revenues will help close budget deficits and go towards shoring up shaky fiscal conditions.