Should the Internet Be Duty-Free?

States are hurting – revenues are down – they need the bucks, but is taxing Internet sales, still in their relative infancy, a way to recoup legitimate funds or a form of infanticide?

The Internet’s image as a duty-free zone took a beating this week when several major online retailers stepped up collection of sales taxes and California’s controller endorsed a national Internet tariff system.

Wal-Mart, Target and Toys R Us voluntarily began collecting online sales taxes in most states and all three now charge Internet sales tax in California.

Nationwide, millions of consumers could end up paying taxes online for the first time.

The changes, proposed and enacted, are part of a national movement to bring tax rules for Internet retailing and catalog sales in line with traditional stores. They also coincide with efforts by state officials, including California’s controller, to reduce the big budget deficits that they must deal with this year.

The online tax plans are already facing serious opposition from parts of the technology industry, a powerful lobby in both Sacramento and Washington, D. C. The industry insists that the myriad state and local tax codes, even in a simplified form being proposed, are too complicated for any company to navigate.

….Online retailing has grown quickly over the years, although it still remains only about 3 percent of overall retailing. Internet sales were expected to jump 41 percent to $72.1 billion in 2002 from $51.3 billion in 2001, according to a study by Shop.org, an industry trade group.

….the companies now collecting taxes are said to have done so in exchange for a promise the states will not come after them for back taxes. Many of those companies declined to collect taxes online over the years even though they had stores in states that required firms with a physical presense there to collect them. [SF Chronicle]

I am surprised the article didn’t bring up the “stifle growth” question as I have heard this concern is why thee has been no federal action taken on the question.