Internet Sales Tax Loophole

(The following are my notes from a panel discussion I attended at the National Conference of State Legislatures. These notes do not reflect my opinion on the subject matter, but rather serve to let you read what the dialogue was and with whom. The legislation discussed deals with FEDERAL legislation, and the issue addresses internet sales across state lines.)


Why is this a big issue now? What has changed?

  • Remote sales increasing
  • Half of states are working to simplify their sales tax laws
  • Tax software has improved
  • State and federal policy makers advocating in favor that something been done by Congress


Sen. Deb Peters (South Dakota)

Represents small town retailers in SD

Online retailers opening up new options for people in SD

Tax laws have not kept up with technology

Protect brick and mortar, but encourage online sales

Looking for ways to simplify process with consistent definitions across the country

SD expanded their “nexus” definition (not as far as Texas did)


Rep. John Otto (Texas)

Susan Combs (Texas Comptroller) sends a tax due notice to in 2010

Amazon Texas distribution center defined as “nexus” in 2011

Texas in 2011 redefined “seller” and “substantial ownership”

Texas House vote 120/150; Texas Senate vote 30/31 but vetoed by Goverenor Perry

Same bill language added to “fiscal matters” bill which HAD to pass to certify Texas state budget; it is law now

Playing field is not level; Otto’s bill was trying to level the playing field

What policy to we put in place? Will brick and mortar even exist?

Legislators as “zebras at a football game;” we are supposed to ensure a level playing field, not pick a winner


David Vite (Illinois Retail Merchants Association)

Since 1977 he has been working on this

Not a new struggle, not new because of Internet; it has applied to catalog sales for a long time

It’s only on the front of the policy maker’s radar because of the “enormity” of dollars involved

Hitting local government in 2 places

  • Sales tax revenue lost
  • Property tax revenue lost

“This is a collection issue, not a tax issue.”


Ms. Adrielle Churchill (works for U.S. Senator Steve Womack)

Her boss is a former mayor of small town in Arkansas

Brick and mortar stores where he lived were losing business to online sales

Should not lose business because of tax discrepancies

Filed federal legislation “Main Street Fairness Act”

Working to educate Congress on the issue

Requires a lot of grassroots effort


Ms. Corey Tallez (works for U.S. Senator

Unlevel playing field

State of Illinois said they cannot lose this revenue, asked her boss to address it

Committed to getting this done this year



Q: to Senator Peters – how did you let involved? What have you been working on with the streamline les tax (federal legislation)

A: practicing CPA, understands it; she showed an interest and got recruited to help; definitions going forward will be important; we need uniformed definitions across the nation;


Q: to Dave Vite – how did you get this one in Illinois?

A: working with local government representatives over the years; have gotten local governments to submit resolution language to their U.S. representatives;


Q: how do we do this revenue neutral?

A: legislation gives states their own authority; hard to tell what is “revenue neutral” for many reasons; so many variables make it such a moving target; consumer spending is unpredictable; some larger companies already charge this sales tax, so you’ll need to know which ones do;

John Otto – surely the state can provide software to the business owners that can help them get tax revenues to the local entities; (it has been an issue that how can an online store know “how” and “who” to get the collected sales tax to;)


Q: what happens to the catalog businesses and the people who use catalogs (mainly old people)? There is no software used at all; what happens now for them?

A: David Vite – not sympathetic to catalog companies at all; they should have been collecting sales taxes this whole time


** Amazon supports the federal legislation


Final thoughts

Tellez – without federal legislation the states are creating a “patchwork” of laws

Churchill – this issue started because the states came to them

Peters – software is out there to help the retailers to get revenue to the right governmental entities

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