Until now, most online sales of consumer purchases have been tax free despite states like California attempting to get around that, in part to help make up budget shortfalls. In 2011, consumers spent more than $200 billion online, with 53% of the population buying something online.
Those estimated are expected to rise even further by 2016 and congress is considering legislation to allow states to begin charging sales tax. The bill currently has bi-partisan support from members of congress and governors of several states, especially republican governors.
While republicans are usually anti-tax, and some admit it will bring an estimated $25 billion into state coffers. But republicans like Sen. Lamar Alexander (R, Tenn.) insist that it's not about new taxes but about state's rights.
Online merchants have successfully kept online sales tax from becoming a reality in the past, but now admit it is likely to become law. Their biggest argument now is that small business accounts for 2/3 of the GDP of the United States, which is true. And most online businesses are small businesses, that much is also true.
But traditional "brick and mortar" businesses have long complained without sales tax being applied to online purchases, it gives them an unfair advantage. Most online businesses counter that they have shipping charges, where as brick and mortar stores do not, and that keeps it level.
Steve DelBianco is executive director of NetChoice, which represents Internet companies. He says the bill would mire thousands of small online businesses in a nightmarish web of new taxes.
Developing a way to compute what tax to apply, and a logistical method to pay each state the tax collected, as well as required government regulations to enforce all of this would be a nightmare, something brick and mortar business do not have to deal with at present, and it would raise the cost of doing business on small businesses, especially hard on small businesses that are brick and mortar who also have an online presence adds DelBianco.