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Here comes the Internet sales tax grab

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By Michelle Malkin  •  April 20, 2009 12:05 PM

State governments — now suffering from spending binges, fiscal mismanagement, and exploding budgets — are starving for new tax revenue. Brick-and-mortar stores and the commercial real estate lobby — reeling from the bad economy — are desperate for a leg up on online competition. They’ve teamed up to renew their years-long push for Congress to effectively impose Internet sales taxes and turn online retailers into tax collectors. A bill will reportedly be introduced on the Hill this week by GOP Sen. Mike Enzi and Democrat Rep. Bill Delahunt.

The New York Post sums up the possible legislative implications with a helpful graphic:

Do members of Congress really want to facilitate a new tax increase right now? The state government/brick-and-mortar lobby are using a “fairness” argument to defend the proposal. But many of the same commercial real estate developers now demanding tax equity themselves received preferential tax treatment and subsidies. And what about President Obama’s promise not to raise taxes of any kind on families making under $250,000? Where is the revenue neutrality? And where does this end?

The pro-tax forces think they’ll have an easy time ramming their Internet sales tax legislation through.

Tea Party activists, are you listening?

***

From CNET, a look at how the pro-tax forces’ simplification proposal is not what it seems:

The final legislation is expected to be introduced by Sen. Mike Enzi, a Wyoming Republican, and Rep. Bill Delahunt, a Massachusetts Democrat, who have championed similar proposals in the past. Delahunt’s office on Wednesday confirmed he was interested; Enzi’s did not respond.

On the other side are the Direct Marketing Association, the Electronic Retailing Association, and companies including eBay, L.L. Bean, and Overstock.com. One of their biggest objections to the idea of collecting sales taxes on out-of-state shipments is the dizzying complexity of state laws.

Take candy, which would seem to be a straightforward item to tax. It isn’t. During a 2003 discussion of tax policy, a representative of Indiana, James Turner, noted that a proposed definition of candy would have taxed the Milky Way Midnight candy bar but not the original Milky Way bar.

But further investigation showed that Turner’s counter-proposal would have treated “certain flavors of Pop Tarts” and Cookies and Twix Crunchy Cookie Bars as candy–but not Cookies and Snickers Crunchy Cookie Bars. Peanut butter Girl Scout cookies would be candy, but Thin Mints or Caramel deLites would be classified as food.

Bizarre distinctions like this, coupled with the existence of more than 7,000 different tax agencies, are why the U.S. Supreme Court ruled that out-of-state retailers generally couldn’t be obligated to collect sales taxes unless Congress changes the law…

…”The states are desperate for new revenue and I think they realize they’re straying far from the simplification they originally promised,” said Steve DelBianco, executive director of NetChoice, which counts as members AOL, eBay, NewsCorp, Oracle, Verisign, and Yahoo. “That creates an urgency on their part–to get the federal mandate before it becomes clear they have no intention to simplify.”

“They have no real intention of simplifying or compensating sellers for the burdens of collecting,” DelBianco said. “It’s a shell game.”

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