The ban was originally passed in 1998 to prevent states and local governments from imposing taxes that could inhibit growth of e-commerce. However, although the internet accounts for less than 1% of all retail sales, the ban has been subject to criticism, particularly from “bricks and mortar” retailers who would like to see the introduction of a new sales tax system that would apply to e-commerce competitors.
Currently, 45 US states and the District of Columbia impose sales taxes. However, a 1992 Supreme Court decision prevents states from collecting taxes from a business unless the company has a physical presence or “nexus” in that state. This creates a discrepancy between on-line and traditional retail with the latter arguing that it is unfair for them to have the burden of collecting taxes, a chore that their on-line competitors do not have. “We should not continue to stand by while remote sellers enjoy an advantage over traditional bricks and mortar sellers,” said Representative William Delahunt.
The two year extension has been criticised for being too long and for delaying the essential introduction of a new tax system. Supporters of the measure, however, said that it meant states and businesses would have ample time in order to work out a system for the collection of taxes.
Evidently, there is a level of difficulty in reconciling the views of the different types of retailers. Catalogue companies and internet retailers have long argued that it would be nearly impossible to comply with the 7,500 different US taxing jurisdictions.
Christopher Cox, one of the ban’s proponents said that “all hell may break loose” if the ban lapses because the different jurisdictions would be “lying in wait, ready to pounce” by imposing a wide range of new taxes in relation to the internet.
It has been estimated that the ban amounts to a $13.3 billion loss in revenue from state sales tax.