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John Nygren sees it as “a matter of fairness.” Why, asks the Republican state lawmaker from Marinette, must brick-and-mortar retailers collect sales taxes from customers while some of their Internet competitors do not?

Nygren supports the federal Marketplace Fairness Act, which would let states snare sales and use taxes on their residents’ online purchases from other states. Now they get these taxes only from businesses with a physical presence in their state.

The bill passed the U.S. Senate 69-27 in May. Wisconsin Sen. Tammy Baldwin, a Democrat, voted yes; Ron Johnson, a Republican who says the bill “placed too much burden on online retailers,” voted no. It’s now before the House, where it faces a tougher fight.

Republican Gov. Scott Walker has no position on the bill, says spokesman Tom Evenson, but the state’s biennial budget commits it to use any additional revenue from Internet sales taxes to reduce the income tax. Conservative economist Art Laffer estimates this would bring Wisconsin 23,000 new jobs and a $7.6 billion boost to its economy by 2022.

The state Department of Revenue estimates the state would collect an additional $92 million in fiscal 2015. The nonprofit Wisconsin Taxpayers Alliance thinks the actual amount would be closer to $70 million, research director Dale Knapp says.

Rep. John Nygren supports the federal Marketplace Fairness Act, to let states collect sales taxes on their residents’ out-of-state Internet purchases.

State residents are now supposed to pay these uncollected sales taxes with their income tax. But few do: Knapp says only 3 percent of the state’s 2011 tax filings included these payments, “certainly a much lower number than if everybody followed the law.”

The bill is backed by the Alliance of Wisconsin Retailers, Wisconsin Rental Merchants Association and Wisconsin Independent Businesses. (Also on board:, whose warehouse expansion plans in many states means it must collect these taxes anyway.)

But opponents foresee a huge new burden on state businesses with online sales.

In a recent letter to the Milwaukee Journal Sentinel, conservative activist Orville Seymer said the bill would force small online retailers, “in many cases family-run or mom-and-pop operations,” to route sales tax payments to the more than 9,600 state and local jurisdictions that impose them.

This information, Seymer says, came from George Klaetsch, a Madison-based contract lobbyist representing We R Here, a national group for small online retailers. Seymer later learned the bill exempts companies with less than $1 million a year in out-of-state sales and directs payments to “a single entity” within each state, not a fractured array of taxing jurisdictions.

 Seymer still opposes the measure, calling it “more bureaucracy that we don’t need.” Klaetsch did not return calls.

The state’s congressional delegation is all over the map on the Marketplace Fairness Act.

Democratic Rep. Mark Pocan, a bill cosponsor, says it would “remove the unfair advantage out-of-state online companies currently have over Wisconsin business owners.” Democrat Rep. Gwen Moore is also in favor.

Republican Rep. James Sensenbrenner is firmly opposed, saying in a statement: “Imposing new taxes on Internet sales would stifle growth in what continues to be an evolving business platform and would amount to a tax increase on American consumers.”

Rep. Reid Ribble, also a Republican, has “concerns about subjecting Wisconsin small businesses to California, New York or any other out-of-state jurisdiction’s sales tax policies (which they) have no say in.” He suggests basing the tax on where a business is located, not where its customers are.

 Republican Reps. Tom Petri and Paul Ryan are ambivalent about the current bill, as is Democratic Rep. Ron Kind, who says “the $1 million threshold is too low for some of Wisconsin’s small businesses.” GOP Rep. Sean Duffy’s office fielded inquiries but did not say where he stands on the bill.

Nygren takes such divergent reactions in stride: “That’s the way our process works. We’re not all going to be marching in step.” But he hopes the delegation will agree to give Wisconsin businesses “the opportunity to be on an even playing field.”

The nonprofit Wisconsin Center for Investigative Journalism ( collaborates with Wisconsin Public Radio, Wisconsin Public Television, other news media and the UW-Madison School of Journalism and Mass Communication. All works created, published, posted or disseminated by the Center do not necessarily reflect the views or opinions of UW-Madison or any of its affiliates.

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4 replies on “Should Internet sales be taxed?”

  1. My brother-in-law’s thriving sporting goods store in Colorado was killed several years ago by unfair online competition. Shoppers would come to his store, waste his time, test or try on his merchandise, then leave without buying so they could get the same merchandise cheaper online and not pay sales tax. Then, they’d bring their purchases to him (high-end sport bikes, etc.) and ask him to do the assembly and tuning for a pittance. The town lost a skilled expert and friend when he was forced to close and leave town.

    It’s just not right.

    I think an online sales tax is long overdue, but it should be ONE flat tax nationwide and kept as simple as humanly possible.

    Also, online merchants should be allowed to make just ONE sales tax payment to the federal government, on a quarterly basis, or at the same time as their other federal tax payments.

    The federal government could then pool all online sales tax proceeds and send each state the portion it is due, according to buyers’ locations.

    If a simple, efficient nationwide system like that can be created, then I don’t think ANY online merchant selling more than roughly $5,000 per year should be exempt.

    The current $1 million threshold isn’t fair to small brick-and-mortar merchants who already have greater overhead costs for physical store-fronts and are required to collect sales taxes on ALL sales.

    I can’t tell from this article whether huge amalgamated online sales platforms like eBay or Amazon would pay these taxes, or whether individual sellers using their platforms would have to comply individually if they exceeded the $1 million threshold.

    I think the responsibility SHOULD be placed on the company operating the platform, not on the tens of thousands of individual small sellers. Many platform corporations are MASSIVE and could easily automate a smooth tax-collection process at the time of each transaction from the millions of individual buyers using their systems. Then, the corporations could easily pool all these tax payments and promptly route the proceeds to the appropriate authorities.

    Individual sellers using these platforms wouldn’t have to do anything extra, so in these cases, NONE of their sales should be tax-exempt.

    I think tax proceeds should still go to the buyers’ locations, otherwise our nation’s wealth will tend to migrate only to cities and states where sellers operate in greater concentrations. Over time, a tax bias tied to merchant location could increasingly starve the economies of thousands of small towns and less merchant-heavy states. Less and less money would be left to circulate locally.

    In particular: many traditional or physical merchants now sell online as well, and some, like WalMart are huge. If sales tax proceeds went only to the one state and one community hosting the headquarters of each of these corporations, it would quickly create enormous disparities between wealthy and poor states and communities.

    Online sales are already sucking money away from less merchant-heavy communities, so why make it worse by sucking away sales tax proceeds also? Let these communities hold on to SOME of their money at least!

    I hope the new online tax will reverse some of the negative pressure on merchants who only sell locally.

  2. Perhaps a smoother, more efficient way of collecting online sales taxes would be to require online “money-changers” to do all the collecting and distributing of tax proceeds.

    Many online merchants accept only charge cards or use third-party financial services like Paypal to process their customers’ payments.

    These money processors could assume the responsibility of automatically deducting sales taxes from every payment they process online. Then it wouldn’t be necessary to set one uniform nationwide internet sales tax. The online banks would know the zipcode of each buyer, could add the correct tax to their checkout total, and could directly send the correct tax proceeds to the correct local taxing jurisdiction.

    Once the software was perfected, a system like this could be fully automated for the online banks and require little real work.

    Perhaps Congress could offer to fund the initial software development and integration costs.

    Hundreds of thousands of individual merchants would be saved from a book-keeping nightmare … having to manually calculate a multitude of different tax payments to be sent to as many different states (… a process which could be especially difficult for smaller sellers with few staff.)

    A centralized system would also be easier for the IRS or other regulatory agency to interact with and audit, which could greatly reduce government administrative costs.

    Just a thought …

  3. Rightly said. Came across this  interesting whitepaper on the online sales tax that readers will find very interesting as it offers good advice for retailers on strategies that will ensure they retain a competitive edge “The Marketplace Fairness Act Five proactive strategies remote sellers should consider now”

  4. To a lot of small business owners, the Marketplace Fairness Act is unfair. As written, the bill would provide a significant advantage for large online retailers while making it much more expensive for those with sales of just over $1 million per year – and it still wouldn’t do much to protect the interests of those it claims to support: small, local bricks-and-mortar shops who still won’t be able to compete with Amazon and others that have tremendous market power.

    Meanwhile, small online businesses and their customers will be penalized with no benefit to consumers or to brick-and-mortar shops. Small online sites will have to make costly investments that will increase risk and boost costs – including paying more in postage to remit taxes to the right authorities — sometimes spending more on postage than the taxes being paid.

    Amazon can afford to amortize additional costs related to the bill across its vast customer base and billion-dollar annual revenues — whereas a small online retailer doesn’t have that luxury. They may even have to shut down operations rather than be subject to audits from at least 49 other states — a number that could go up 9,600 tax jurisdictions, if the matter of what entities can audit online retailers is not resolved.

    I have also wrote an article about ‘Marketplace Fairness’ being unfair to small biz for Crain’s Detroit Business –

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