Congress considers whether consumers should pay sales tax for online purchases

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This September, Californians who buy books, electronics, even diapers on Amazon will start paying sales taxes. Congress is considering whether it'll allow states to compel all large online retailers to collect those taxes.

Twenty years ago, the Supreme Court ruled that states couldn’t require online retailers to collect local sales taxes unless they maintain a physical presence in the state. Consumers still owe the tax, but few of them pay it. The court invited Congress to revisit the issue.

Democratic Congresswoman Jackie Speier says it's time. She says California is expected to lose $1.8 billion in uncollected tax revenues this year alone.

At a House Judiciary Committee hearing, Speier told the story of a power tools retailer in her San Mateo district that's losing business to the Internet. She says technology has now made it possible for consumers to "shop for goods in brick and mortar stores, get advice, kick the tires on products like TVs, computers, cameras and bicycles and then find and buy the item online, sometimes right on their mobile phone while standing in the store."

Speier cosponsored a bipartisan bill that gives states authority to require that online retailers collect sales taxes. Smaller businesses with annual sales of less than a million dollars are exempt.

But Republican Congressman Elton Gallegly of Simi Valley says he’s concerned about Congress approving new taxes. Backers of the bill say it just enforces the collection of an existing tax. Gallegly isn’t convinced.

"When you have to pass a law to tax somebody, a tax they’re not paying," he says, "to me that seems as though it’s a new tax." Gallegly asks whether it's a fair tax.

Steve DelBianco, head of NetChoice, says it’s not. NetChoice represents the online giants eBay, Facebook and Overstock.com. DelBianco says the legislation requires online businesses to collect taxes based on where consumers live. Fairness, he says, would mean that everyone plays by the same rules.

He cites outlet malls or souvenir shops where nearly all the customers come from out of state. He says tax equity would mean requiring their customers to show an ID "so the clerk could figure out the sales tax where they live and file a return where they live." He calls that "ridiculous."

Ridiculous or not, as states and local communities scramble for revenue, Internet sales taxes may be an idea whose time has come. Speier’s bill is one of at least four such proposals floating around the House and Senate.

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