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US Senate approves bill allowing states to tax Internet purchases

The US Senate [official website] approved a bill [text, PDF] on Monday that would subject online shopping, a traditionally tax-free frontier, to state sales taxes. The law currently maintains that retailers must have a physical presence in the state to collect sales taxes. Thus, many Internet retailers have an advantage with tax-free online sales. Matthew Shay, president and CEO of the National Retail Federation [advocacy website] supporting the bill, highlights: "Small retailers are collecting sales tax on the first dollar of any sale they make, and it's only fair that other retailers who are selling to those same customers the same product have those same obligations." However online retail giants such as eBay and Amazon [official websites] strongly oppose the bill, as do leaders from Montana, New Hampshire and Oregon. As these states do not have sales taxes, they argue that businesses in their states should not have to collect taxes for other states. The bill has bipartisan favor, but a number of issues remain to be addressed as Internet tax becomes increasingly relevant.

The commerce clause [JURIST news archive] has been a hot topic recently. In March, the New York high court ruled [JURIST report] that the state may impose a sales tax on out-of-state retailers that do business within the state. At issue in the case was a 2008 state tax law known as the Internet Tax [text, PDF], which places a sales tax on out-of-state online businesses that generate at least $10,000 in annual sales to New Yorkers from in-state websites. Last June, the Supreme Court's high-profile ruling [text, PDF; JURIST report] to uphold the Patient Protection and Affordable Care Act (PPACA) [JURIST backgrounder] sparked major controversy. A month later, JURIST guest columnist Robin West opined [JURIST op-ed] that Chief Justice Roberts's conviction that the individual mandate is not authorized by the commerce clause is evidence of a new, anti-collectivist conception of individual rights that is growing in popularity.

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