More States Look to Tax Internet Sales

I've previously written about the so-called "Amazon Tax," New York State's move to expand the definition of a physical presence in a state so as to be able to force a retailer to charge sales tax. I also wrote that this was just the beginning, and as I expected, things are accelerating.

As many states face budget crises, they are looking for as many ways to increase revenue that they can. The sales tax some states feel is lost on Internet sales, which, in the past, would not be taxable if the retailer did not have a brick-and-mortar physical presence in a state would be welcomed.

New York State's "Amazon Tax," expands the definition of physical presence by adding the presence of an affiliate in New York, such as one of Amazon's Affiliates who advertise items on their site, to the mix.

At the same time, New York State considered adding yet another tax: a "digital goods" or iPod tax, meaning a tax on things like music downloads. This eventually died when it was left out of the budget, but as C|Net notes, other states are moving forward on such taxes.

Seventeen states currently have a sales tax on digital goods, and that number will increase to 18 on July 1st when Mississippi's tax goes into effect. Somewhat ironically, GOP Governor Haley Barbour endorsed the legislation via Twitter, saying:

"On HB 1461, I support this bill and here's why: This bill will treat Internet sales like catalog sales making it a level playing field."

Besides Mississippi, the other states charging a digital goods tax are: Alabama, Arizona, Colorado, Hawaii, Idaho, Indiana, Kentucky, Louisiana, Maine, New Jersey, Nebraska, New Mexico, South Dakota, Tennessee, Texas, Utah, and Washington, as well as the District of Columbia.

C|Net notes that similar bills have been introduced in North Carolina and Minnesota.

One state standing against the tide is North Dakota, whose Governor, John Hoeven on March 19 signed into law a measure to explicitly exempt digital goods from taxes.

Let's be honest though: we all know it's just a matter of time. All that tax revenue is sitting there waiting to be collected, and we're not going to avoid it forever.