Tax Wars Set to Break Out on Internet

US states that are struggling to balance their budgets are pushing legislation to require online sellers to collect sales taxes where they have a physical presence or where an affiliate has one. Industry observers predict that Congress may enter the fray as soon as this month with a bill to do the same.
By some estimates, uncollected taxes from all online sales could total more than $10 billion a year nationwide.

Traditional retailers say that with no tax to pay, online sites can offer sharply reduced prices on a regular basis, which gives them an unfair advantage.

A 2009 University of Tennessee study concluded that next year state and local governments are projected to miss out on $11.4 billion to $12.65 billion in sales taxes uncollected from e-commerce sales.

U.S. e-commerce sales among all retailers in 2012 are forecast to be $217.5 billion, up from this year’s projected $197.3 billion and an increase from $176.2 billion in 2010, according to Forrester Research. In contrast, in 1998 internet sales were $5.5 billion, the first year the research firm has data. Additionally, as online sales have grown, so has their share of retail spending, which in 1998 was only 0.47%. This year, the internet’s retail share is expected to be 9% and by 2015 increase to 11.1%, according to Forrester.