You probably don't want to pay sales tax for online purchase, but you should. There's no strong argument that Internet commerce should receive more favorable tax treatment than shopping at a store in person. A post I wrote earlier this week argued this point. It posed the question: why aren't states doing more to pursue collecting sales tax from online retailers? In fact, some are.

First, however, let's take a step back. There is actually a big obstacle in the way of states simply forcing Internet retailers to collect state sales tax that was not mentioned in my earlier post. The Supreme Court had previously ruled, in Quill v North Dakota in 1992, that mail-order sales could should not be subject to sales tax. This was based on the Court's interpretation of the commerce clause, essentially saying that doing so could interfere with commerce between the states.

This might seem like a high barrier. After all, Supreme Court rulings are not easily overturned. In this case, however, nullifying the Court's decision might not be as hard as usual. In Quill v North Dakota, Justice Stevens clearly states that Congress has the power to modify the Court's interpretation of whether taxes create an undue burden on interstate commerce. From the majority opinion:

This aspect of our decision is made easier by the fact that the underlying issue is not only one that Congress may be better qualified to resolve, but also one that Congress has the ultimate power to resolve. No matter how we evaluate the burdens that use taxes impose on interstate commerce, Congress remains free to disagree with our conclusions.

So really, states just need to convince Congress to order Internet retailers to collect sales tax. In order to do that, they must convince Congress that forcing online retailers to do so won't be overly burdensome. These days, that shouldn't be so hard. Technology can provide solutions that would allow retailers to obtain state sales tax data relatively easily and to integrate it into their web hosting software. In fact, some companies exist to provide this service, such as Avalara.

That leaves the problem of simplifying the complexities that exist in state sales tax rules, which could provide make it difficult for online retailers to easily implement sales tax collection. The Streamlined Sales Tax Project seeks to remedy exactly this problem. According to its website:

The goal of this effort is to find solutions for the complexity in state sales tax systems that resulted in the U.S. Supreme Court holding (Bellas Hess v. Illionis and Quill Corp. v. North Dakota) that a state may not require a seller that does not have a physical presence in the state to collect tax on sales into the state. The Court ruled that the existing system was too complicated to impose on a business that did not have a physical presence in the state.

The group's website says that the effort is making progress, as 23 states have adopted simplification measures already. And 44 states plus D.C. have joined the effort. So states are, in fact, trying to avoid losing sales tax revenue from online commerce.

It may be tempting to rally against paying sales tax for online purchases. After all, nobody likes paying taxes. But allowing a loophole to exist for online retailers to avoid collecting sales tax provides them with an instant competitive advantage over brick-and-mortar retailers. Online shoppers get an effective discount on the merchandise they purchase by escaping sales tax. Like it or not, the law should promote fairness, and the current sales tax precedent is not fair.

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