U.S. Markets closed

Are You Ready for a Federal Online Shopping Tax?

Are You Ready for a Federal Online Shopping Tax?

Willie Sutton famously said he robbed banks "because that's where the money is." In a similar vein, cash-strapped state and federal lawmakers are looking to raise funds wherever they can, which invariably leads them to online shopping, one of the fastest growing industries in an otherwise tepid economy.

But now, New York and several other states are looking to get their cut of the e-commerce pie by collecting sales tax on all internet purchases and transactions.

Amazon (AMZN), like my co-host Jeff Macke, thinks this is not such a great idea. As a result, the Seattle company run by billionaire Jeff Bezos has hired a powerful lawyer to make its case court.

Related: Bed, Bath & Beyond Trumps Amazon! The Revenge of Old School Retail

But like most issues, especially those emanating from Washington or the capitals of large states, the matter is complicated.

According to the latest Commerce Department data, internet sales increased by 18.4% in the second quarter, while traditional retail sales rose by just 4.7%. Even so, on-line shopping still accounts for only about 5% of total retail sales, or $65 billion out of $1.12 trillion.

Related: Amazon’s Secret Plan to Sell You Everything!

Even Amazon, whose $60 billion of sales makes it far and away the biggest target for online taxation, is backing legislation (the Marketplace Fairness Act or MFA) that would allow states to collect sales tax, while pressing legal challenges against it at the same time.  A look at Amazon's byzantine list of explanations for how it handles various state tax laws (from tire fees to electronic waste withholdings to use tax notifications and more) helps explain why it supports passage of the MFA.   Still, many smaller on-line business fear the threat of being audited by 50 states and are actively trying to squash it.

The stakes are, of course, enormous. New York alone estimates that it loses close to a billion dollars a year in revenue from uncollected on-line sales taxes, and it is only 1 of 45 states that currently have a sales tax, the exceptions being Alaska, Delaware, Montana, New Hampshire and Oregon.

At the same time, shipping companies, like FedEx (FDX) and (UPS) are also interested in the law, as are traditional brick and mortar stores who have long protested against their disadvantage versus their digital brethren. Individual sellers, who use sites such as (EBAY) to sell things all over the world, are also ruing the day that their tax-free party comes to an end.

Related: Amazon Earnings Disappoint, Shares Move Higher

And finally, with this issue headed straight to the Supreme Court and through the halls of Washington, the motives behind the recent acquisition of the Washington Post by Jeff Bezos are also being questioned.

More from Breakout:

Wall Street Fat Cats Imprisoned Like ‘Goodfellas’: Does Rajaratnam = Gotti?

Syrian Strife and Uneasy Markets Stoke Demand for Bonds; Can It Last?

Syria Crisis Could Send Oil Toward ’08 Highs: Schoenberger