No Web Tax Yet

Like a Java version of the sword of Damocles, the threat of a Web tax has loomed over e-Commerce players since the Web was formed a little more than a decade ago.

But fitting for an October deadline, this sword is more of the tissue-paper and cardboard type, one that looks scary only from a distance. Upon closer examination, e-commerce shops are discovering it’s a twist on the Halloween tradition called Threat Or Treat.

But first, there’s some background we need to get out of the way.

Both sides in this debate point to a pivotal U.S. Supreme Court decision in 1992, which essentially said that states cannot force businesses to collect sales tax from customers unless that business has a “physical presence” in the state where that customer is based.

Note that the high court’s decision was in 1992, a full two years before the commercial Web existed.

For you purists out there, Tim Berners-Lee is credited with inventing the World Wide Web in 1989, but there wasn’t an initial functional system deployed until 1990—while Berners-Lee was still working at CERN, the European Organization for Nuclear Research.

The first graphical browser—NCSA Mosaic—didn’t launch until late ’93 when the classic NCSA What’s New pages were launched. It was 1994 before businesses started to truly use the system.

Here’s a great piece of trivia: The NCSA What’s New page was shut down in ’96, which was an official acknowledgement that there were far too many Web sites to list them all or to even list the important ones.

The preceding Web history recap was merely meant to stress that the Supreme Court decision was by no means intended as a Web tax decision, as it’s unlikely any of the Justices even knew of the impending Web at that point.

That decision certainly didn’t prohibit e-commerce players from collecting those sales taxes. It merely said that a state couldn’t force the site to do so. It’s voluntary and has always been voluntary, which is important when assessing the significance of recent efforts by some 18 states in supporting a movement called the Streamlined Sales And Use Tax Project (SSUTA).

The 1992 Supreme Court decision was more concerned with mail catalogs and other telephone order facilities that might have stores in one state but would ship products to many other states.

Another holdover from the brick-and-mortar world is regional pricing, which some argue has no place on the Web. To read why, click here.

The problem with “physical presence” is the corporate relationship with Web and non-Web companies. Barnes & Noble recently argued to a California court that it’s online and brick-and-mortar companies were distinct and that—they argued—meant the location of brick-and-mortar locations had no bearing on the Web operation.

The state shot that argument full of holes using Barnes & Noble’s own policies of accepting returns from the Web site at its physical locations. That, the court agreed, showed a special relationship.

Personally, I don’t think the court even needed to go there. The judge could have limited questioning to “Mr. E-Commerce exec, who owns you? And who owns your physical stores? Same company? Next case!”

As e-commerce sites do what they must do and become more intertwined with their physical operations—leveraging the strengths of each, as some marketer out there is saying—the shell game of presence has to stop.

This would mean that any e-commerce players with a lot of physical stores (, for example) must pay tax where their corporate parent has anypeople, whether it’s a warehouse, a store, a call center or anything else.

This would give pure-play e-commerce players ( being the largest example) a definite advantage. has no direct physical locations, but it is partnering with a coins-to-dollars machine network to give it a way to let consumers pay for purchases using change. Will this work? To read more, click here.

This would mean that a small e-commerce site out there somewhere would not only be able to charge less because of reduced overhead, fewer channel conflicts and even the tendency to disregard manufacturer-recommended pricing from time to time, but it could get out of charging sales tax where its multi-channel rivals couldn’t.

This is a crucial distinction, especially as price comparison sites get more sophisticated and start noting which sites are likely to charge sales tax and an estimate of shipping charges. This way, an Amazon deal to waive shipping charges can be compared apples-to-apples with a site that charges slightly less but that willcharge shipping.

When the choices for the identical product are getting that close, the difference of one site charging sales tax and another notcharging sales tax might easily make the difference between making or not making a sale.

Next Page: What The Oct. 1 Deadline Means.

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