A bill has been introduced in the Senate by Sen. Jim Bunning (R-KY) that would prohibit a state from requiring an online business to collect sales taxes unless it has a physical presence in that state. New York has been attempting to tax Internet businesses that conduct transactions in the state without having a physical presence (nexus). Some of those businesses caved - eliminating their New York presence, but others, including Amazon.com have sued the state.
New York's efforts are at the heart of a burgeoning area of sales tax law because states are looking for new avenues of revenue and consider Internet business a lost revenue source because so many transactions are not taxed unless the business in a given state is selling to customers in that state. States consider this particular type of transaction as an affront to local businesses, who operate at a disadvantage as a result.
More importantly, states are looking at every avenue of increasing tax revenues at a time when states are seeing economic slowdowns. Taxing sales transactions on the Internet is seen as one way to accomplish that.
Another is to increase tax enforcement and collections. New York is attempting to do both, which is why Bunning introduced the aforementioned SB 3670.
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