Now it seems that amazon.com and other Internet retailers are playing hardball here.
The goal is to create a compact of sorts that allows states to tax items you purchased online elsewhere and have these major retailers collect the taxes themselves.
First, let me point out, this is not taxing the Internet. The Internet should be free people should relax here. What is happening is that we are allowing states to exercise a power they already had, and just increasing compliance.
Technically, when you buy something from out of state, you are required to pay sales tax for the state you use the item in. This is best illustrated using Massachusetts and New Hampshire. New Hampshire has no sales tax (only real property taxes, but that problem is for another day). So, say you buy a car there. You pay no consumption tax (sales tax) on it there. You think great, and drive it back to Massachusetts, where you live, in the most opinionated zip code in the world, 02138. You are going to use the car here, so you should pay tax on it. Indeed the Massachusetts Department of Revenue and the RMV here will go after you when you register your car if you failed to pay any such tax (and you do need records of your sale).
But, say you do this for a candy bar, or a bottle of cheap Two Buck Chuck. Well, now there is no mechanism to check, but when you file your Massachusetts return you should report.
Essentially, almost every state has some sales tax (there are a few prominent exceptions that come to mind, NH and OR), even very red ones. All of these states are bleeding revenue as commerce moves online. Traditional retailers too are placed at an unfair advantage. They must collect these taxes.
In the end, I think the sort of silliness of let the Internet be free though will win here. And we will create a new inadvertent tax shelter on a consumption tax no less.
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