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Online sales tax divides Republicans

According to South Carolina Republican Sen. Jim DeMint, an online sales tax is “taxation without representation.”

“Our nation was founded on the idea that a citizen has taxation with representation and the online sales tax on businesses destroys that tradition entirely,” DeMint wrote in an op-ed this week.

The issue of online sales taxation continues to be debated as congressmen return to their districts for the August recess.

Online sales tax proposals would require companies to collect taxes on all goods purchased online, regardless of whether or not the business has a physical presence in the state.

Many Republican officials are supporting the proposals. Fourteen of the 20 governors who have announced their support for an online sales tax are Republicans. Four Republicans are co-sponsoring the Senate Marketplace Fairness Act and 27 Republicans have already signed on to the House Marketplace Equity Act.

Even former Republican Govs. Jeb Bush and Haley Barbour have thrown their support behind a mandated Internet sales tax.

“It seems to me there has to be a way to tax sales done online in the same way that sales are taxed in brick and mortar establishments,” Bush said in a letter to Florida Republican Gov. Rick Scott. “My guess is that there would be hundreds of millions of dollars that then could be used to reduce taxes to fulfill campaign promises.”

Advocates of the expanded tax authority say that the Supreme Court’s Quill standard — which says online companies must only collect taxes if they have a physical location in a state — creates a tax loophole for online purchases and as a result, states miss out on revenue.

In a letter to Montana Democratic Sen. Max Baucus earlier this year, supporters of the legislation said the tax “will help states facing their own budget shortfalls without increasing the federal deficit.”

The letters adds, “Congress has an opportunity to enhance states’ rights over sales tax collection authority and in the process level the playing field for all merchants.”

Discussion of online sales tax collection has surfaced many times since the Supreme Court’s ruling in 1992, but due to changes in technology and the dire straits of cash-strapped state governments, mandating online sales tax collection has now garnered bipartisan congressional support.

Leading the charge of corporate support for the tax is online superstore Amazon. In testimony before the Senate Commerce Committee,  Amazon VP Paul Misener argued that the proposal “provides for sales tax simplifications and other provisions that will make it even easier for third party service providers to assist sellers and the states.”

Under current law, Amazon collects sales tax in six states, but is scheduled to open distribution centers and collect taxes in eight more.

Amazon’s vice president of indirect taxes and tax reporting told a conference of state tax officials, “We don’t consider [not collecting] tax as a competitive advantage.”

Still, the company posted a 96 percent drop in profits for the second quarter. And critics argue the Internet sales tax would hurt small businesses.

Anti-tax advocacy group Americans for Tax Reform has come out against online sales taxes. The group argues proposed laws “would raise state-level taxes on Internet and out-of-state purchases while upending critical taxpayer protections built into the tax code to protect Americans from the tax laws of other states.”

“Unfortunately for taxpayers, the federal online sales tax bills miss the mark widely on both fronts,” the group adds.

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