Internet Tax Law Challenged by Team of Attorneys General

Well, it looks like some states are not taking the new internet sales tax regulations lying down. According to the Washington Post article titled: “Attorneys general from 3 states without sales taxes urge House to vote down Internet tax bill“, the attorneys general from Montana, Alaska and Oregon all sent letters to U.S. House representatives Wednesday urging them to oppose an Internet tax bill. They allege that the measure is unconstitutional and could prompt a legal challenge if it passes.

Back in April, I wrote a post attempting to shed some light on the Marketplace Fairness Act that was at the time, passing through the Senate. The bill requires taxes from e-commerce to be collected and remitted for online purchases even if the business is not physically in the state. This includes sales made through catalogs and radio and television advertisements and applies to any businesses who sold more than $1 million online out of state.

Those who support the bill, generally brick and mortar stores believe online business has an unfair advantage because up until now, they were not required to collect sales tax from their customers. Those against the bill believe this requirement will be a tax compliance nightmare.

According the article, the attorneys general sent letters to all 435 U.S. House of Representatives recommending they reevaluate the proposal for its legal and economic pitfalls. The attorneys general cited what they believe to be the following issues:

  • The bill is an unconstitutional violation of due process on the basis that it allows states to collect taxes from retailers that have little or no contact with that state.
  • The bill is overly burdensome as it requires small businesses to collect then remit taxes for an estimated 9,600 cities, counties and states quite possibly causing major tax problems due to non-compliance.
  • The bill’s passage would prompt years of “costly, protracted and unnecessary litigation.”

Attorney General Tim Fox of Montana told reporters on Wednesday he was not threatening a lawsuit, but rather attempting to appeal to the reason of federal legislators to halt the bill’s progress before it becomes a legal issue. However, other attorneys general have come forward to say that “nothing is off the table, including litigation.

I’m sure this is not the last of the opposition to internet sales tax. As I have said before, I fully expect to see an increase in tax audits and non-compliance tax issues for online retailers who don’t understand all of what they were required to do. Online retailers who will be affected by the new law will want to make sure their certified tax professional is up to speed on all the compliance requirements. Not only can this prevent tax problems in the first place, it will also keep them on the right side of the taxing authorities.

More Tax Help, IRS News and Tax Relief Tips:

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