Proposed Internet Sales Tax Legislation Could Impact Online Sales for California Residents

Like Granny hiding her "rheumatism medicine" from the "Revenuers" on The Beverly Hillbillies, the Internet offers online shoppers some safe havens from sales tax. If Rep. Bill Delahunt (D-Mass.) has his way, however, the Revenuers will be knocking on the doors of all online sellers. Delahunt recently introduced H.R. 5660, also known as the Main Street Fairness Act, into Congress as a way to make online vendors responsible for collecting sales tax from customers.

The World's Largest Tax-Free Garage Sale

With a hectic work schedule, I use online shopping for convenience and quality. Online vendors such as the Home Shopping Network (HSN) and ShopNBC offer name brand items at competitive prices. Over the past two months, I purchased a Pentax SLR Camera and a Toshiba laptop computer, each of which arrived quickly and in good shape. I paid the sales tax for these purchases as I would have in a bricks-and-mortar shop, but dealing with an established online vendor makes the tax a small price to pay.

When I go bargain hunting, I use eBay, the online auction site also known as "the world's largest garage sale". As an iPod enthusiast, I always look for older, hard-to-find versions of the popular music player. Sellers eager to buy high-end, late model iPods typically are willing to part with their old models at bargain prices. Sometimes, the items are not quite as advertised, but with eBay, you usually get what you pay for.

Most eBay sellers aren't in business for themselves, so they don't bother to charge sales tax. As the Associated Press pointed out several years ago, however, the Internal Revenue Service uses certain criteria to differentiate a casual seller from an online business. As a buyer, that gave me some "wiggle room" when bidding on items from someone cleaning out the basement.

If signed into law, Delahunt's bill will break down the walls between business owners and those casual sellers. To avoid the paperwork hassles that go with collecting sales tax, some small eBay sellers may close down their online operations, relying on yard sales and flea markets to make a few extra dollars.

The Infamous iTunes Tax

Speaking of iPods, Apple has redefined entertainment iTunes, an online store where people can buy individual music tracks, albums, movies and episodes of popular TV shows. In most states, it is a quick, convenient and tax-free way to download the digital media that you want.

As a resident of Irvine, Calif., however, I could be paying California sales tax on items not purchased in my state, including purchases from iTunes. California legislators recently introduced Assembly Bill 2078, which would require me to pay sales tax to California on online purchases from vendors who aren't even based here. Even if Rep. Delahunt's proposal dies in committee, I may still be on the hook for California sales tax when shopping online.

An Internet Tea Party

As a hard-working guy who just wants to buy electronic toys and listen to classic rock on his iPod without going broke, what are my options? Do I stage an Internet Tea Party where my friends and I dump our garage sale treasures on Rep. Delahunt's front steps? Some pundits think the Main Street Fairness Act won't get very far, but we eBay enthusiasts have to be ready for the worst and act accordingly. In any event, we have to let Delahunt and other lawmakers know that we don't support Internet sales tax legislation.

Resources:

Yahoo News, "New Internet sales tax is introduced"

http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=111_cong_bills&docid=f:h5660ih.txt.pdf

Associated Press, "IRS May Tax Your Ebay Sales"

Bicycle Retailer and Industry News, "California Lawmakers Propose Internet Tax"