Online retail sales tax to be collected

A controversial proposal that would compel online retailers to collect sales tax on transactions in states where these companies don't have a physical presence is under consideration by US lawmakers.

While proponents say this would end the "free lunch" that online-only retailers have been enjoying, e-commerce companies say it will impede their growth. But both sides agree this move is inevitable.

"NYC Fitness, Family and Finds" is a New York City-based online retailer on e-commerce site eBay Owner Kathy Terrill packages her orders at home and often ships them off to destinations outside of New York State.

For now, Kathy only has to collect sales tax on items sold within New York, but this may soon change under a proposed bill to extend online sales tax collection to all states where transactions occur.

Kathy fears this could hurt her business, and lead to an enormous amount of paperwork come tax time.

The Marketplace Fairness Act would require online retailers that gross more than a million US dollars a year to start collecting sales tax, just as brick and mortar retailers already do. But many small online businesses feel this could hurt their growth.

eBay, which works with many small online retailers, says the proposal offers small online business little protection. In a statement, the company wrote that:

Online retail giant Amazon, which previously opposed the move, has become more accepting of the proposed law.

While both sides argue about how online retail sales tax should be implemented to level the playing field, industry watchers say it's an inevitability, not just because of how rapidly online shopping has grown, but also because states and local governments are under pressure to collect the revenue they need to keep things running.