By Oregon Tax News
In an effort to generate more money, cash-strapped states are turning to two controversial solutions—an Internet retail sales tax and legalizing online gambling.
The Wall Street Journal recently reported that an Internet sales tax, referred to as the Amazon tax, could generate $23 billion for states. Historically, online retailers like Amazon and eBay have relied on a 1992 Supreme Court ruling stating that Internet retailers didn’t have to collect sales taxes if they lacked a physical presence in a customer’s state of residence. As a result, online shopping has grown and consumers have had the luxury of finding deals more cheaply and conveniently online than at the store. The 1992 decision, however, did give Congress the authority to step-in and require companies to levy a sales tax, which it has yet to do.
Supporters of the Amazon tax have long argued that online companies should not be given an unfair competitive advantage over brick and mortar companies that must collect state sales tax from customers. Conservative lawmakers have historically resisted the Amazon tax as part of a philosophical commitment to low taxes. But that appears to be changing as lawmakers grapple with budget shortfalls and the need for cash. Several Republican governors, including Chris Christy of New Jersey, have recently expressed support for federal legislation empowering states to tax Internet shopping.
The National Conference of State Legislatures (NCSL) estimates that California could generate $4.16 billion from the Amazon tax, Texas 1.78 and New York $1.77 billion. While the numbers would be smaller in some states, the impact could be greater. The NCSL estimates if an online sales tax had been operative in previous years, some statea could have plugged millions of dollars worth of budget holes. For that reason, an Internet sales tax increasingly seems inevitable in many states desperate for more money.
As states look for additional revenue streams, Internet gambling is also being considered as another way to bring in more money to government coffers. Federal authorities have historically interpreted the 1961 Wire Act to prohibit wagering over telecommunications systems. However, a 2011 ruling by the Department of Justice (DOJ) said the prohibition applies only to sports bets and gave states wide latitude to regulate Internet gambling within their borders. The ruling opens the possibility that an Internet gambling industry could emerge within states.
In the wake of the DOJ ruling, some states are easing into Internet gambling. New York and Maryland, for example, plan to sell lottery tickets online as a first step. Nevada has now authorized online poker. This past June, however, Delaware became the first state to pass legislation that offers residents a wide range of Internet gambling services, including blackjack, poker and slot games. According to the Wall Street Journal, Delaware officials estimate that internet gambling could bring $3.75 million in the first half of 2013—when the law would take affect.
Internet gambling has generally met stiff resistance from a coalition of lawmakers, convenience store owners, casinos and anti-addiction advocates. Among other things, the difficulty of regulating an Internet gambling industry across state borders as well as the potential social consequences have thwarted gambling interest intent on making Internet gambling a viable and widely accepted industry.
Proponents of Internet gambling believe Delaware’s bold legislation could provide the needed momentum to get an Internet gambling industry off the ground.
