Since inception, Amazon and other online retailers have shipped orders without charging customers sales tax, unless the customer lived in the company's home state.
That may soon change. State and local governments would have collected $19 billion in additional revenue last year had they insisted on Internet retailers charging state taxes. Now that governments are cash-strapped, local taxes on Internet sales are a tempting money-grab for states. And retailers know this.
Last week, more than half a dozen online retailers privately agreed to start charging state sales taxes on orders across the country. Lawmakers in 33 states simultaneously agreed on simplifying tax collection laws pertaining to sales across state lines.
Companies already charging a state sales tax on online purchases include Wal-Mart
Its stock presumably declined on fear that a state tax would lower Amazon's competitive strength, and the slightly higher cost (an additional 6% to 8% with local taxes) would send customers elsewhere. For the most part, though, this logic doesn't hold water.
If every online retailer were to charge state taxes, the issue would become a wash, as far as any competitive advantage is concerned. The tax becomes a nonissue. Customers would continue to choose online retailers based on convenience, selection, and product price.
Meanwhile, Amazon maintains it'll remain a deep discounter and continue free shipping on orders above $25. Free shipping at Amazon squelches the fear that state taxes, combined with shipping, would make online retail too expensive, sending people to the mall.
Finally, surveys say we don't pay much attention to tax charges, anyway. We're used to them by now.