The Death of the Tax-Free Internet?

Last week, by virtue of a 63-30 procedural vote, the Senate moved forward with a bill called the Marketplace Fairness Act, with a final Senate vote set for May 6, according to The Wall Street Journal.

The bill, if it were to become law, would enable states to force online sellers nationally to collect sales tax with respect to their residents’ purchases.

In the past, online sellers were not in favor of the imposition of sales taxes on Internet transactions — indeed, these sellers had a competitive advantage over brick-and-mortar sellers, because purchases from online sellers were cheaper for buyers due to the lack of imposed taxes.

However, according to the Journal, this has changed. Large online sellers now have tremendous physical operations nationally with warehouses and other facilities, while more traditional sellers have moved more and more online. Accordingly, the tax advantage for online sellers has “eroded.”

Indeed, some major online sellers, such as Amazon, are now at least part of the support for the Marketplace Fairness Act, as reported by The Wall Street Journal. Online auction site eBay, on the other hand, has been seeking a substantial annual sales threshold to trigger sales tax, so that smaller online retailers would not be harmed.

The Act, if it were to become law, in essence would supersede much earlier Supreme Court precedent, which held that a particular state could not require an online seller to collect sales taxes unless that seller had a true physical presence in that state.

This legislation is worth following.

Eric Sinrod is a partner in the San Francisco office of Duane Morris LLP, where he focuses on litigation matters of various types, including information technology and intellectual property disputes. You can read his professional biography here. To receive a weekly email link to Mr. Sinrod’s columns, please email him at with Subscribe in the Subject line. This column is prepared and published for informational purposes only and should not be construed as legal advice. The views expressed in this column are those of the author and do not necessarily reflect the views of the author’s law firm or its individual partners.

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The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

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