With the worsening economy and state budget deficits, states are increasingly considering adding sales tax to online retail transactions. Legislation could be implemented as soon as 2009, according to Forbes. "States are coming up with huge deficits and looking for places to make money," says Eric Menhart of CyberLaw. “All of a sudden, Internet taxation appears a lot more viable." The legislation will be introduced as soon as January; if passed, changes could be implemented within six months. It is estimated that these taxes would generate several billion dollars in revenue: the Streamlined Sales Tax Governing Board (SSTGB) estimates that uncollected sales tax revenue was between $19 and $27 billion in 2006.

The Supreme Court’s 1992 ruling in Quill v. North Dakota permits retailers to avoid applying sales tax in states where they don’t have a physical presence.

In July of this year, New York State implemented the controversial “Amazon Tax”, which required internet retailers with affiliates within the state to pay sales tax. The law is still being contested by Amazon and other online retailers.  Several states, including Florida, Illinois, Massachusetts, Texas and Virginia, have contacted the Streamlined Sales Tax Governing Board (SSTGB) about implementing similar taxes.

Opponents claim that the tax would make business and more complicated for smaller retailers. Regulating international and sales to tax-exempt entities will also pose problems. EBay’s William Lasher says that 11 to 14 of the company’s $27 billion 2007 sales were to these areas.

Another concern is how this will affect small retailers. The Sales Tax Fairness and Simplification Act would exempt retailers with annual gross-remote sales of less than $5 million.

By Mark Alvarez