States have been pushing lately to require all on-line retailers to collect and submit sales tax. My home state of Georgia has its own bill waiting for the governor’s signature and nine other states have done the same in the last few years. You can see why. Think about it. Folks who used to buy books at the shop around the corner (or even at “big, bad, Fox Books”) now often buy them on-line, and more and more of those “books” are actually eBooks. Many people today download or stream their music, rather than going to the record store (yes, I said record store).

The same situation exists in increasing numbers with movies. Why get in the car to go rent a movie when you can stream it. Yes, DVDs still have a little life in them. They make great gifts when you’re having a problem thinking of something to get that guy or gal who has everything. Also, kids have the uncanny ability to enjoy the same movie or show once a week for a year, so DVDs beat streaming in that case. Those DVD extras are pretty cool, too.  Of course, you can also buy DVDs online (if you’re not too late with that gift).

A host of other items that used to be purchased at brick-and-mortar stores are now click-and-purchase.  This decrease in local buying has left states with some serious revenue shortfalls. In addition to overall tax revenues being down because of the economy, commerce is increasingly taking place on-line, cutting out the states from money they used to count on to fund the government. To add insult to injury for local merchants, consumers sometimes go to the store so they can feel and touch items before making their decision. Then they turn around and make the purchase from an on-line retailer to avoid the sales tax.

The Supreme Court in 1992 said that sales tax should only be collected when a merchant has a presence in the state, like a retail outlet or a warehouse. Of course, that was in the days of catalogs, not ecommerce. It’s a lot more convenient these days to buy something from an out-of-state merchant. You can search for whatever you want in one, big place (the Internet), compare prices with other on-line retailers, and peruse the latest product reviews. You don’t need to talk to anyone unless you want to. It’s easy, and it’s now a booming business.

Despite the court ruling, there is a little known fact you’re probably not aware of. Depending on the state you live in, you’re probably still supposed to pay a “use” tax on your on-line purchases. States like Georgia and California are reminding their citizens that they are supposed to record on their state income tax forms any tax due from items purchased out of state or online. I’m sure everyone is doing that, right?

I’m one who is usually against a tax increase. I think governments generally have a spending problem and not a revenue problem. But, I also understand the push for taxing Internet sales. There has been a significant reduction in revenue for states, and almost every state has a requirement to balance their budget. This is a good thing, and it can help keep spending in check. It’s something our Federal government needs.  Of course, if the revenue doesn’t come in, cuts have to be made, and as some states have seen these last few years, those cuts can be painful and controversial. Taxing on-line purchases will replace some lost revenue that states need to run the local government services that we all depend on, including police and fire services.

Also, charging sales tax on Internet purchases would help level the playing field for local businesses.They’re required to collect sales tax and submit that money to the state. It puts local merchants at a competitive disadvantage if folks can get around paying the tax by simply purchasing on-line.

At one point the argument was made that taxing Internet sales would stifle the burgeoning ecommerce industry. I think we’re past that point. If a sales tax is implemented for on-line purchases, people will still buy items on-line. Sure, there will be some impact on online retailers, as some sales will go back to local merchants. Consumers won’t be able to avoid the 7 to 10% sales tax buying something online that they would otherwise purchase while at a store. But, “mom and pop” gotta eat, too, right?

What do you think?  Are you okay with paying sales tax for on-line purchases, or do you want ecommerce to remain tax free?