Recap: Constitutional Limitations on States' Authority to Collect Sales Taxes in E-Commerce

The House Committee on the Judiciary held a hearing on Internet sales taxes on Nov 30.

Paul Misener, Amazon’s vice president for global public policy, urged Congress to set standards for collecting state sales taxes from online commerce. Any exceptions to the tax should be kept “very low” for fairness reasons, Misener said. Amazon, the largest online retailer, has long battled attempts by states to levy sales taxes on Internet transactions. Now it’s backing efforts to create a federal standard for states to collect sales tax on online purchases. A 1992 U.S. Supreme Court decision exempted businesses from collecting sales taxes in states in which they don’t have a physical presence, or “nexus,” such as a store or warehouse.

That ruling has given Internet-based sellers an edge in the marketplace over brick-and-mortar retailers, said Rep John Conyers (D-MI). John Otto, an accountant and state representative from Texas, urged lawmakers to set ground rules for requiring the collection of online sales taxes. If the 1992 Supreme Court decision “is allowed to remain the law of the land, are we not picking winners and losers within the retail sector?” Otto said. “The marketplace has changed in 19 years and we have not.” The National Governors Association estimated that states are currently missing out on collecting more than $22 billion each year in sales tax on goods sold online or through catalogues.