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Sales taxes for all online purchases? Resistance in House is strong.

Brick and mortar retailers have long sought to 'level the playing field' with e-retailers by requiring an online sales tax. But the Senate's Marketplace Fairness Act faces strong opposition in House.

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Brick and mortar retailers have long sought to 'level the playing field' with e-retailers by requiring an online sales tax.

John Adkisson/Reuters/File

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If a resident of New York State buys an Airzooka toy air gun from Sillyasstoys.com, it will cost $24.95 plus shipping.

If the same person buys the same product online from Toys R Us, the price is $26.99, plus shipping and New York’s sales tax, which can be as high as 8.75 percent depending on the county.

The reason why Sillyasstoys.com, which describes itself as a “Unique & Unusual Children’s Online Toy Store,” is not charging New York sales tax: it is based in Virginia and has no physical presence in the Empire State.

The US Senate, however, as part of its budget resolution, voted last week to approve the Marketplace Fairness Act, which would require any e-commerce business with over $1 million in sales to charge sales tax. In other words, if Sillyasstoys.com has over $1 million in sales, it would have to charge New York sales tax for any toys shipped to New York or any other state with a sales tax. Yes, add $2.18 to the toy.

Brick and mortar retailers have been lobbying Congress for years to try to pass the legislation. They maintain that it will “level the playing field” between themselves and e-retailers who only sell their goods online. And, many of the states with uncollected sales taxes foresee billions of dollars in new tax revenues if the legislation is enacted. According to one estimate there are about $23 billion in uncollected state e-commerce sales taxes each year.

However, conservative groups argue that forcing e-retailers to pay a sales tax when they have no physical presence in a state is unconstitutional. The US Supreme Court has said they don’t have to pay the sales taxes if they don’t operate in that state.

“Erasing the physical presence requirement allows states to reach across borders to a degree they can’t now,” says Pete Sepp, executive vice president at the Washington-based National Taxpayers Union, which believes in lower taxes and limited government. “Physical presence is a key Constitutional protection.”

The pro-sales tax organizations, however, interpret the 1992 US Supreme Court decision (Quill v. North Dakota) as still unsettled. As part of the ruling, the court said, “Congress is now free to decide whether, when, and to what extent the States may burden interstate mail-order concerns with a duty to collect use taxes.”

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