E-Commerce and Sales Tax

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E-Commerce and Sales Tax

Throughout the country, states are not collecting some or any taxes on online transactions. This debate has been brought to Congress, state, and local governments as to whether taxes should be imposed on online transactions as well as who should standardize online taxing. Research shows that the estimated revenue losses in excess of $60 billion alone from online transactions. This number is only to grow with increased use of ecommerce. (McClure 2000)
Both state and local sales taxes are collected by vendors at the time of transaction and are levied at a percentage of a product’s retail price. Alternatively, use taxes are often not collected by the vendor if the vendor does not have nexus (loosely
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The second option is unlikely without action by the states and local governments to simplify and harmonize their tax regimes under SSTP. Both approaches have their supporters and naysayers. (Maguire 2005)
Opponents of such taxation emphasize that electronic commerce does, generate substantial revenue for state and local governments from a variety of tax sources, including business and personal income taxes, and that additional tax revenue is hardly needed at a time when the economy is booming and most state government budgets are met. They feel competition between the nation’s state and local tax jurisdictions helps hold tax rates down to their cost-effective minimum. If one state or city imposes a sales tax rate that is too high in relation to public services those taxes help finance, its tax base will shrink as businesses and consumers move to other jurisdictions with lower taxes and better roads and schools. However moving is costly. The ability to avoid high local taxes by making purchases over the Internet or through mail-order catalogs supplies an alternative margin of competition that forces governments to be more fiscally responsible. (Kemp 2000)
While local retailers are then at a competitive disadvantage, internet retailers have a disadvantage of their own in the form of the shipping and handling charges their customers must pay. Local retailers then can
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