Since a 1992 U.S. Supreme Court ruling (Quill v North Dakota) online sales have largely been exempt for state sales taxes. In Quill, SCOTUS ruled that sellers did not have to collect sales taxes unless they had a physical presence in the home state of the buyer.
Consumers in many states, including New Jersey, are required to pay the sales taxes on online purchases themselves. Few do and few states do anything to enforce the tax.
In 1992 online sales were not such a big deal. However 20 years later, America makes $200 billion per year in online retail purchases and states are losing out on $23 billion in sales tax revenue, according to a Washington Post report.
Large “brick and motar” retailers complain that the online exemption creates a pricing disadvantage for them and a cost, as consumers shop for items in their show rooms but then purchase items online at the lower price, often from smart phones while still in the retail show room.
Local retailer Vic Scudiery, owner Hazlet electronics seller IEI and the former Chairman of the Monmouth County Democratic Party, has long held that the state is losing out by not taxing online sales. Scudiery told MMM that IEI’s monthly sales tax paid to New Jersey was over $20 thousand before the majority of its sales shifted from store visits to the Internet. Now, Scudiery says his store generates less than $8000 per month in sales tax for New Jersey while overall revenues continue to grow.
Mega online retailer Amazon had long been opposed to collecting sales taxes, in part because the process of collecting and reporting sales taxes for thousand of jurisdictions is too cumbersome and confusing. But Amazon has abandoned that argument as it has changed its business model. As the company aggressively opening new distribution centers in many states, including New Jersey, to reduce the time and cost of its shipping of consumer products, it is cutting deals with states that would allow it avoid collecting sales tax for a year or two and get state income tax credits if they build and hire. In New Jersey, Amazon will build two huge distribution centers, create 1500 jobs. The company will start collecting New Jersey’s 7% sales tax from Jersey residents in July of next year under a voluntary agreement with the Christie administration.
trade association lobbyist, who’s members clients include eBay, facebook, Overstock.com and Internet wine sellers, are continuing to fight sales taxes based on the complicated and cumbersome argument.
Bi-partisan federal legislation, The Marketplace Equality Act, would authorize states to collect sales tax from online retailers shipping products into their jurisdictions and require, that if the states choice to impose that tax collection on retailers, that they simplify the process and, in some circumstances, provide software to the sellers that would calculate the appropriate tax.
Republican governors, lead by Gov. Chris Christie, have dropped their long term opposition to taxing online sales and endorsed the Marketplace Equality Act, according to the Wall Street Journal.