The one advantage the internet offers people looks like it might disappear in the near future. I'm talking about the fact that most internet sales are not taxed. Congress is gaining even more support for internet taxation. A new measure put forward by Senators Mike Enzi (R-WY), Richard Durbin (D-IL) and twelve others was introduced in 2011 and is scheduled to be heard in the House Judiciary Committee on July 24.

While some internet transactions are taxed due to the fact that some companies operate brick and mortar stores, a large portion of the internet operates tax free. The landmark case of Quill Corp. v. North Dakota in 1992 was the case that set the precedent for online retailers to not collect sales tax because they did not own a brick and mortar location.

Of course the brick and mortar companies are happy with the companies that operate only online getting taxed as they see it as more of a level playing field. “All retailers want is a level playing field,” said Jason Brewer, vice president of communications and advocacy at the Retail Industry Leaders Association, an Arlington County-based trade group.

But it isn't just the federal government and brick and mortar stores that are happy about such a tax, it's also the states themselves. The Washington Post reports,

A wave of states, including Virginia, have passed laws that will require consumers to pay sales tax on all Internet purchases as soon as next year. Other states and the District are pursuing similar measures. And in Maryland, Gov. Martin O’Malley (D) wants to go further and levy a tax on songs and other digital products bought through popular sources such as iTunes.

For states struggling in the troubled economy, this could mean $23 billion in new revenue each year, according to the National Conference of State Legislatures. Had online retailers collected sales tax this year, Virginia would have added nearly $423 million to its coffers, while Maryland would have seen $376 million and the District $72 million, the group said.

The movement in state capitals is driving newfound support for a proposed bill in Congress that could make collection of sales tax a standard practice on the Web, no matter where a consumer logs in to shop.

The internet has been a great, virtually unlimited resource for building small and large businesses worldwide and the government thinks they own a piece of it. They believe it is their right to tax every single thing that individuals do and it's all for their benefit. Government does not know how to rein in its own spending and when it spends beyond its means it doesn't have to worry with silly things like budgets, it just finds new and innovative ways to tax the people it is supposed to serve.

Remember that line about level playing field? The problem is that for many online retailers they don't do that volume of sales that bigger companies do. The smaller online companies don't have the lobbying power in Washington that the bigger corporations do either and don't think that doesn't make the playing field a bit un-level.

Online sales do eventually generate taxes and here's how. Last year online sales generated $200 billion in sales and then jumped fifteen percent over the first quarter of 2011 in the first quarter of this year. That money then transitions to pay for products sold, which have been taxed through the manufacturer's raw materials. The sales transition also into wages, which means jobs, which then translates to more taxes. Those people who receive pay buy other things, both online and in stores, which also brings in tax revenue. Those jobs allow for the purchase of big ticket items such as cars, land, and houses, which are not only taxed, but taxed annually in many states. So it isn't as though there are no taxes generated from online sales. It's just government sees a new source of revenue and they are salivating over it.

The biggest burden for online retailers would be dealing with state sales taxes. Personally I am wondering why entrepreneurs should be tax collectors for the government in the first place. They certainly aren't compensated for their work for the government, but then this is the way government thinks. They believe they should be able to force you to do their bidding while they rob you of your hard earned money and then tell you that you only have opportunity because they grant it, not because you are free to do so.

Director of government relations for the online auction site eBay, Brian Bieron, released a statement that bashed the proposal:

“The giant retailers jockeying for new Internet sales taxes have national store networks that they combine with their major online sales platforms, a business model they know brings some tax collection duties.

Forcing small businesses to take on the same costs and tax burdens as national retail businesses is unrealistic, unfair and will unbalance the playing field between giant retailers and small business retailers on the Internet.”

I couldn't have said it better myself. In a lousy economy where jobs are hard to find and difficult to keep, this has to be one of the stupidest moves on the part of government to get things moving in the right direction.

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