| 3.23.22

Sales Tax for Online Shopping? What if it Comes With a Ban Taxing Internet Access? (S. 2609)

Do you support or oppose this bill?

What is S. 2609?

(Updated July 13, 2017)

S. 2609 would authorize states to collect sales taxes from out-of-state retailers who sell and ship products to consumers within their borders and prevent you from being taxed for your internet access.

This bill would effectively end an online retailers' ability to avoid paying sales taxes on transactions that happen in states where they do not have a physical presence - like a store or office.

Remote sales would be defined as a sale of goods or services into a state where the seller wouldn’t be legally required to pay, collect, or remit state or local sales and use taxes.

Small-sellers — defined as businesses who generate less than $1 million in annual revenue from remote sales — wouldn’t be required to collect sales taxes on their remote sales. The bill extends the following portions of the Internet Tax Freedom Act until November 1, 2024:

The ban on state and local taxation of Internet access, and the levying of multiple or discriminatory taxes on electronic commerce.
The exemption from this ban for states that had imposed and enforced a tax on internet access before October 1, 1998.

Argument in favor

This bill levels the playing field between physical stores and online retailers —operating online doesn't mean a company shouldn't pay sales taxes.

Argument opposed

An online sales tax disproportionately impacts small businesses. Plus, the taxes will be passed on to consumers in the form of higher prices.

Impact

People who shop online, businesses that sell products on the internet between states, and state tax agencies.

Cost of S. 2609

A CBO cost estimate of a previous version of this bill (S.743) found that it would have no impact on the federal budget.

Additional Info

In Depth:

This legislation has been introduced multiple times over the years, and gained traction in late 2014 as the expiration date on the Internet Tax Freedom Act loomed in November. This is the law than bans governments at all levels from taxing internet access.

The National Retail Federation that strongly supports this legislation notes that state governments miss out on around $25 billion in sales taxes every year because businesses don’t have to pay sales taxes on transactions occurring in states where they don’t have a physical presence. This is the result of a 1992 Supreme Court Case — Quill Corp. v. North Dakota — which created the physical presence rule for sales tax collection.

In a nutshell:

"Most of those who sell via brick-and-mortar stores are lobbying hard for the bill, which they say would level the playing field for all retailers. Those who sell their goods online, on the other hand, say they would struggle to monitor and collect any number of the hundreds of local and state sales tax rates that exist across the country."