Your recent editorial advocating taxation of online sales ("The digital divide," June 26) understates the legal and practical difficulties of imposing such a tax.
Far from being a "subsidy" or "tax exemption" for such sellers, the current law is based on the Supreme Court's ruling that the commerce clause of the U.S. Constitution bars states from imposing sales tax collection responsibilities on companies that are not physically present in the state. This decision stems from our founding fathers' understanding that states would attempt to export their tax burdens to other jurisdictions and impede interstate commerce.
A few other states have attempted to end run this constitutional prohibition by focusing on a small set of on-line advertisers, known as "affiliate marketers." These laws assert that a certain type of active, in-state promotion by websites constitutes nexus for sales tax collection. The unfortunate result of these laws has been either litigation or the on-line retailers ending business ties with affiliate marketers in the state. Neither North Carolina nor Rhode Island saw increased revenue as a result of the tax, both lost jobs, and now there are efforts in both states to repeal the laws. So while it is doubtful that such a law would yield any revenues for the state treasury, it would clearly have a negative impact on the thousands of Maryland-based small businesses that would see their affiliate agreements with remote sellers terminated.
The real solution for leveling the playing field is for Maryland to adopt tax changes that will enable it to participate in the Streamlined Sales Tax Agreement. Two dozen other states have adopted conforming changes to simplify their sales tax laws, enabling them to collect hundreds of millions of dollars in taxes from remote sellers. Why not Maryland?
The writer is president and CEO of the Maryland Chamber of Commerce.