Logjam Breaks in Online Sales Tax Stalemate (Maybe)

Friday, September 30, 2011 at 9:40 PM by

California and Amazon.com have reached an agreement on the collection of sales tax that may lay the groundwork for significant changes in other states as well. As part of the agreement, Amazon will collect sales tax on purchases made in California starting in July 2012, unless there is federal legislation enacted before then that would supersede state law.

California’s agreement with Amazon comes after years of states trying, without success, to force online retailers to collect sales tax. Sales tax is owed on purchases whether those purchases are made online or in physical stores, but states are on shaky legal ground when they try to force online retailers to collect the tax. And big online retailers such as Amazon have devoted significant resources to thwarting states’ collection efforts. (You can read a more thorough analysis of this issue in our 2010 analysis, “Examining Wisconsin’s Progress in Leveling the Tax System for Retailers.”)

California’s agreement with Amazon requires the retailer to start collecting sales tax, but not until the middle of 2012. In the meantime, Amazon is expected to push for legislation at the federal level that would limit the ability of states to force retailers to collect sales tax, or at least ensure that states take a uniform approach to doing so. This Stateline news article from September 29th has more about the deal hammered out between California and Amazon.

What does all this mean for Wisconsin? At this point in time, not much. Wisconsin is already part of a collaboration that seeks to make sales tax more uniform among states, and Wisconsin policymakers haven’t shown much enthusiasm for pushing the envelope in forcing online retailers to collect the sales tax.

Still, the California-Amazon agreement increases the likelihood that Congress will pass federal legislation resolving this issue. And given that Wisconsin is currently collecting very little sales tax from online retailers, any federal legislation resolving this issue has the potential to represent at least some small revenue increase for Wisconsin. Right now, many states (Wisconsin included) are in a “wait and see” mode, but it’s promising that there is at least some movement among the parties towards resolving the online sales tax impasse.

Tamarine Cornelius

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