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Taxing Litigation

The state of Illinois is suing 70 online retailers for not collecting sales tax. Citing a state law that requires retailers maintaining a physical presence within Illinois’ borders to charge sales tax, the state’s suit is targeting companies that allow products purchased online to be returned to an actual store within the state. Among those named in the case: Barnes & Noble, Blockbuster, Target, and Urban Outfitters.

A study by the University of Tennessee estimates that states forfeited $13.3 billion in sales tax revenue in 2001, a figure that it says will rise to $45.2 billion in 2006, because of uncollected online sales tax. At the same time, the study figures that states are already facing a combined budget shortfall of $68.5 billion for the 2004 fiscal year.

I think it makes sense to charge sales tax to customers living in the state in which a company is based — common practice in the mail-order catalog business — but what do you think of this click-and-mortar end run?

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