Online nightmare: Thune presses for internet sales tax

South Dakota Senator John Thune is hopeful that one day all local governments can reap the revenue benefits of applying sales taxes to online businesses that don't have a physical presence in the state.

Last year, he co-sponsored the Sales Tax Fairness and Simplification Act (s.34), which met fierce resistance from on-line retailers, as well as conservative activists. The bill died in committee two years ago, but Thune and his co-sponsors -- Democrat Senators Inouye, Leahy, and Johnson; as well as Republican Michael Enzi -- are hopeful that with state deficits growing, another source of revenue might be tapped.

Wyoming Senator Mike Enzi, the bill's sponsor, testified at a hearing supporting the bill in 2007:

As a former small business man, it is important to level the playing field for all retailers - in-store, catalog, and online - so an outdated rule for sales tax collection does not adversely impact small businesses and Main Street retailers.

By addressing this collection inequity, the bill will also help states ensure the viability of the sales tax as a major revenue source for state budgets by closing a growing loophole that encourages tax avoidance.

It will help both consumers and states by reducing the burden on consumers and providing a mechanism that will allow states to systematically and fairly collect the taxes already owed to them.

At a time when states are increasingly turning to the federal government for program funding, it is logical that Congress would instead authorize the states to collect their own revenue instead of raising the federal tax burden to then distribute money back to the states.

Testifying in a hearing before the House's version of the bill, the Direct Marketing Association tax counsel, George Isaacson, argued against the House's version (H.R. 3396) of the bill:

“The US Constitution, with its Interstate Commerce Clause, has been critical to maintaining a national open-market economy.

Accordingly, the last thing Congress should do is endorse legislation, which would stifle that open market with a burdensome regime of tax-collection requirements.....

[it is] a document drafted by tax administrators, and — as might be expected — it resulted in little in the way of tax simplification."

And Don Bistow, writing for Liberally Conservative, puts it in layman's terms:

“Build it and they will come” is not necessarily true in business and certainly not an easy task on the world wide web of shopping. However, “build it and they will come” is true when politicians sniff out money they believe belongs to them so they can earmark away and waste more dollars on pet projects in their districts.......

For online seller’s, like myself, we develop user friendly, easy to navigate sites and work like hell to get noticed in the search engines where competition is an understatement. Many of us pay for ads to draw prospective customers and are too small to play tax collector and accountant for federal and state governments.