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The Amazon Tax Is Coming! Will Tax-Free Online Shopping Be History?

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An online shopping tax might become standard practice across the Web if a bill in Congress is passed.

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MINYANVILLE ORIGINAL In most states, you can cruise Amazon (AMZN) or any other e-commerce site and buy all that you want tax-free. This is thanks to a Supreme Court decision in 1992 called Quill vs. North Dakota, in which it was ruled that states can't collect taxes from vendors that don't have a physical presence in the state.

Brick-and-mortar retailers like Best Buy (BBY) and Wal-Mart (WMT) do have a presence on the ground in several different states. And in addition to paying for power, rent, security, and salaries for the extremely necessary greeters at the store entrances, they also add sales tax to customers' receipts. This adds to Amazon's frequent price advantage, which the Internet company is all too happy to remind customers of through mobile apps that scan barcodes to show you how much money can be saved by buying from Amazon. (Read More: Retailers: Amazon Is Using Your Store as a Showroom and There's Nothing You Can Do About It.)

A bill in Congress might change this. The bipartisan bill might make paying value added tax online standard practice.

One issue to be considered in this decision is states' fiscal budgets. The National Conference of State Legislatures estimates that this year, states will not collect $23 billion in possible taxes on online transactions. Especially with several California cities going bankrupt, states' unemployment and civil servants being laid off from coast to coast, states can use all the help they can get. Several states, including California, New York, Texas, and Illinois, are claiming that Amazon et al. actually do have a presence in their states through their distribution centers as well as affiliate organization that partner with online realtors.

BestBuy, Wal-Mart, Barnes & Noble (BKS), and Target (TGT) support the bill, and so does Amazon. Facebook (FB), Overstock (OSTK), and eBay (EBAY) are protesting the bill.

The Retail Industry Leaders Association, a trade group, is hoping that Congress follows Senators Dick Durbin, Mike Enzi, and Lamar Alexander's proposal.

"States have sent a bipartisan message to Washington that it's time to end special treatment for online-only retailers and close the sales tax loophole. Nothing is more important to the retail community than a level playing field devoid of government picking winners and losers with the tax code," said Katherine Lugar, Executive Vice President for Public Affairs at the Retail Industry Leaders Association. "Sens. Enzi, Durbin, and Alexander are taking the next step, making it clear that they want Congress to act by the end of the year."

"A true free market gives every retailer the chance to compete on price, without the government's thumb on the scale," added Lugar. "This legislation offers the right balance of protection for small online startups, while giving all retailers the opportunity to compete on a level playing field."

Twitter: @vincent_trivett
No positions in stocks mentioned.
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