The Pendulum May Be Swinging In Favor of the States and Local Subdivisions
The following report was taken from "A Peisner Johnson Blog", a member of SALTSource, Your Source for State and Local Tax News. EdKisscorni.com is affiliated with Peisner Johnson.
Many Internet-only retailers do not collect sales tax on their sales except in a few states where they have a physical presence or nexus. Amazon.com may be the largest of them all and certainly must be the most well-known, but by no means are they the only ones. There are many online sellers large and small who do not collect sales tax everywhere they ship product.
Internet sellers have generally followed Amazon's lead and taken the position that since they don't have physical presence, they don't have "substantial nexus" and therefore states can't force them to be tax collectors. States have struck back with a variety of so-called "amazon laws" attempting to assert that these online sellers do in fact have at least a type of physical presence through so-called "click-through affiliates" and other agents in the state.
Online-only sellers usually collect tax in just a few states. This contrasts sharply with traditional retailers that have "brick-and-mortar" stores. These traditional retailers who also make substantial sales online almost universally collect taxes on their online sales. And with an estimated $170 billion dollars in online retail sales in 2010 according to the National Retail Federation, it's become a huge issue. It's a big deal for states starving for revenues and for small/local as well as large/international companies who may or may not be collecting tax on online sales.
Not collecting tax has made Amazon a target of state revenue departments and their traditional retail competitors. State revenue departments face a tremendous pressure to stem the tide of falling tax revenue. Brick-and-mortar competitors large and small are also bringing the heat to the politicians. These self-styled "main-street" businesses who do collect tax but face what they feel is the unfairly subsidized competition from online sellers want their legislators to level the playing field.
Keep in mind that the prominent online retailers like amazon.com and overstock.com are only the tip of the iceberg. There are many more businesses who sell online but don't collect taxes in most states. Amazon gets all the attention, but any change in the nexus laws hits all the smaller retailers as well. In fact, it hits them much harder in terms of cost of compliance. Compliance costs are pretty much fixed or not very variable, so the cost of compliance is relatively small for a large online seller and relatively large, even bordering on prohibitive for a smaller online retailer.