Best Sources on State Sales Tax and Reform of Internet Exemption
Update and Alert 5/6/13: The U.S. Senate today passed the Marketplace Fairness Act by a whopping 69-27 margin. After years of slow progress, we're seeing an outpouring of support this spring, including editorials by the Washington Post and USA Today, President Obama, The Atlantic, and Forbes.
The battle in the House will be much tougher, so consider helping raise awareness via a letter to the editor of publications in your area (asee our our Tips on Writing Effective Letters to the Editor). And be sure your Representative knows what you think! Call the U.S. Capitol at 202-224-3121 (toll-free number: 1-855-808-2387) and ask for your Representative by name to leave your comments.
Background: Sales taxes on retail purchases are widely charged in 45 U.S. states,* but not all businesses are treated equally. Businesses that sell via "brick and mortar" storefronts are forced by state governments to collect the tax on behalf of the states, but remote retailers lacking in-state facilities (online and catalog merchants) escape such responsibility, effectively discounting their prices. This penalizes storefront businesses with a 4%-11+% handicap and, on larger purchases, is a huge deterrent to patronizing local businesses (both independent and chain) and prevents genuine market competition.
The American Independent Business Alliance supports national reform to eliminate this government handicap on storefront businesses (see our 2011 commentary in BusinessWeek or a recent update in TriplePundit and our endorsement of 2013 Marketplace Fairness Act). We compiled this resource page to help you find many of the best availalable sources of information and commentary on the debate.
* Alaska, Delaware, Montana, New Hampshire, and Oregon do not levy statewide sales taxes.
- The Institute for Local Self Reliance is a great starting point for an overview of the sales tax debate
- Table of state and average local tax rates (sortable)
- Comparative summary of three Congressional bills pending in Nov. 2011 by National Retail Federation (sales tax reform advocate).
- National Conference on State Legislatures' e-commerce page estimates foregone tax revenues by state, as does the interactive map on this page from Governing magazine.
- University of Tennessee study (2009) estimates $11.4 billion in sales taxes owed by buyers on Internet sales in 2012 will go uncollected
- Chart of Revenues per Employee among various retailers. This shows greater job creation by storefront businesses compared to online-only retailers (National Retail Federation).
- Stand With Main Street hosts mnay additional resources and provides legislative updates.
- MarketplaceFairnessNow.org hosts more information from sales tax reform advocates.
- The Heartland Institute makes the arguments opposing our position on sales tax reform.
- Streamlined Sales Tax Governing Board
- Multistate Tax Commission
- Online Retailer Sales Volume in the U.S. for 2007-2010 (by quarter)
- Online Sales Tax Collection and Impacts is California (pdf). Report by Taxpayers Advocate (Aug. 2010)
- The American Booksellers Association provides fact sheets and publishes updates in their weekly newsletter
- The International Council of Shopping Centers hosts a huge library of resources for reform advocates
Legal Documents and Court Rulings
- Quill v. N. Dakota 1992 U.S. Supreme Court ruling
- Overview of Geoffrey v. S. Carolina 1993 S. Carolina Supreme Court ruling on nexus
- Current, Inc. v. California 1994 County Court ruling on nexus
- Text of Streamlined Use and Sales Tax Agreement (as of Dec. 13, 2010)
- The U.S. Supreme Court Should Accept a Nexus Case by Friedman, Ganz and Scully. Paper detailing the mixed record of nexus cases.
How Did State Sales Taxes Start?
According to the 1902 census, state governments generated 45 percent of revenues from property taxes while the figure for local governments raised 78 percent.
1 Changing economic conditions drove states to diversify revenue sources and the stock market crash of 1929, with accompanying devaluation of property, led Kentucky and Mississippi to enact the first broad-based general sale taxes in 1930.2
New York City imposed the first local sales tax in 1934. By 1962, 12 states granted local governments the power to impose sales taxes. Today, more than half of all municipalities receive some revenue from sales tax, though often only as a share of state taxes.
In 1969, Vermont became the 45 state to enact a sales tax, leaving Alaska, Delaware, Montana, New Hampshire, and Oregon as the only states not imposing them. Some local entities collect some sales taxes within those states.
1. Michael A. Pagano, dean of the College of Urban Planning and Public Affairs at the U. of Illinois at Chicago
2. Sales tax on specific items was common throughout U.S history (and may date back as far as 2000 BC in Egypt). Such item-specific taxes proliferated during the U.S. Civil War, though many were terminated after the war's conclusion.For more on issues surrounding of Amazon.com Corporation in this realm, see Amazon's Physical Presence (Nexus) in U.S. States and the Sales Tax Battle.