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Sen. Dick Durbin wants to step up taxes on U.S. citizens by forcing online retailers to start collecting sales taxes.  (Source: Progressive Illinois)

For small online retailers like ThinkGeek, having to navigate through 7,500 unique U.S. tax jurisdictions could prove disastrously expensive.

The measure is shaping up to be a battle royale for lobbyists. On one side brick and mortar retailers are funneling millions in campaign donations to try to "convince" politicians to support the measure. Meanwhile e-tailers like Amazon are pouring out similar amounts of money to try to convince politicians to oppose the coming bill.  (Source: Brand New)
"All your (taxes) are belong to us. You have no chance to survive make your time."

U.S. founding father Benjamin Franklin once wrote, "In this world nothing can be said to be certain, except death and taxes."

Thus it is perhaps not surprising that as U.S. Tax Day rolls around, Congress is considering yet another effort to try to impose sales taxes on the internet.  An aid to Senator Dick Durbin (D-Illinois) told CNET that the Senator would introduce a bill looking to implement an online sales tax after the Easter recess.

Sen. Durbin has been trying to push the issue for some time.  In a speech in Collinsville, Ill. in February he complained, "Why should out-of-state companies that sell their products online have an unfair advantage over Main Street bricks-and-mortar businesses? Out-of-state companies that aren't paying their fair share of taxes are sticking Illinois residents and businesses with the tab."

Currently online retailers like eBay Inc. (EBAY) and Amazon.com, Inc. (AMZN) collect no sales tax in most states.  That is because of a federal legal precedent called nexus, which states that companies only have to collect taxes in states they have physical presences in.  That concept was solidified by the 1992 case called Quill v. North Dakota, in which the U.S. Supreme Court ruled: "Congress is now free to decide whether, when, and to what extent the states may burden interstate mail order concerns with a duty to collect use taxes."

Formally, in most states people are expected to report these unpaid taxes at the year's end and pay them personally, but almost none do.

The decision to push taxes could hurt these major e-tailers.  But it could hurt small e-tailers like ThinkGeek even more; as they would need major infrastructure overhauls to support the collection of taxes.  There are over 7,500 taxing jurisdiction in the U.S., each with their own tax rules.  Navigating that mess would be a nightmare for these small players.

The new bill will be entitled "The Main Street Fairness Act".  According to his aides Sen. Mike Enzi(R-Wyoming) will co-sponsor the bill.  He sponsored a previous bill with the aim of internet taxation. 

In an effort to push for online taxes Sen. Durbin and other proponents may back a broad adoption of the Streamlined Sales Tax Agreement an inter-state proposal that 24 states have thus far adopted.  Formulated in 2002, the proposal seeks to do away with specialized, confusing tax laws and adopt a simpler sales tax code.

Retailers like Target Corp. (TGT) and Wal-Mart Stores, Inc. (WMT) would be deeply grateful if the bill passed.  They've been pouring millions into lobbying Congress to eliminate the online tax exemptions.  

And they're trying to convince small retailers to support them.  Some say that doing so may not be in those small players' best interests, though.  Argues Steve DelBianco, executive director of the NetChoice coalition, a group which represents eBay, Amazon.com, and other e-tailers, "Big box stores love to mobilize smaller booksellers to complain about competing with Amazon.  The irony is that those small booksellers have been clobbered by big box stores. The Internet's their friend."

Despite the bi-partisan sponsorship and fair degree of bipartisan support the measure is expected to have difficulty passing in the Republican-controlled house.  Many Republicans vote against high profile taxes increases as a rule and many Democrats may be wary of supporting the measure as the 2012 elections loom near.

Last time around, for all the retailers lobbying efforts, the e-tailers (who also lobbied pretty heavily) won.  The internet is tax free -- for now.





"A politician stumbles over himself... Then they pick it out. They edit it. He runs the clip, and then he makes a funny face, and the whole audience has a Pavlovian response." -- Joe Scarborough on John Stewart over Jim Cramer
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