According to a recent Rasmussen poll, 63% of Americans are opposed to an internet sales tax.  Alabama legislators should take note of that poll, and reconsider their support for Rep. Jamie Ison’s HB365.

Rep. Ison has introduced legislation (HB365) to increase enforcement of the 1939 sales and use tax law specifically targeting internet sales.  The vast majority of Alabamians are unaware of the law which requires them to remit a “use” tax on items purchased through catalogs or over the internet.  The law has never really been enforced, and Alabama retailers are trying to change that.

Local retailers argue they are put at a disadvantage because consumers must pay sales tax when buying at their stores, but do not have to pay sales tax when ordering online. While this is true, there are local retail stores that continue to flourish.  The advantages of having the desired goods immediately and without paying shipping and handling often outweigh the benefit of not paying sales tax.  Even if that were not the case, legislators cannot use public policy to subsidize business models that don’t work in the current marketplace.  The internet is not a fad.  Like it or not, business owners must begin to account for it when making their business plans.

Rep. Ison’s proposed legislation puts a huge burden on online retailers and an even bigger burden on individual consumers.  As it stands, HB365 will:

  • require an obnoxious pop-up window to appear on your computer screen prior to completing a purchase.  The warning would inform shoppers that they owe a tax and inform them of penalties for non-compliance.  Consumers will be required to indicate they have read and understand the notice before they can proceed with their purchase.
  • require retailers to maintain a record of your purchases and  send you a statement at the end of every year listing all the items you have bought within the year.
  • require retailers to keep your purchase records as well as your acknowledgement of obligation to pay the tax for an indefinite period of time to be set by the Revenue Department.

The bill would very likely be declared unconstitutional.  Similar laws in other states have failed on constitutional grounds.   This bill discriminates against out of state retailers, actually compels certain retailers to collect a tax, and relieves certain taxpayers from the tax.  Alabama is trying to skirt relevant court decisions, but this clearly places a burden on out of state businesses to assist in tax collection, if not collect it directly, in likely violation of the Commerce Clause.

The Bottom Line:  This bill has constitutional problems, privacy problems, and tax problems.