Business 8th Edition by Marianne Jennings

Exercise 18

Business Strategy
The Taxing Business of the Internet
Currently, the so-called bricks-and-mortar retailers such as Federated Department Stores and Macy's support state officials' drive to collect taxes on online sales because they already do so on their online sales and would like to level the playing field with their online competitors. Required to collect the taxes because their store facilities are in all states, chains such as J.C. Penney complain that the processes and formulas for collection are complex and increase their costs of doing business. Retailers such as Target, Wal-Mart, and Circuit City, part of the e-Fairness Coalition, argue that with their thin margins, giving e-retailers a pass on the 6-8 percent sales taxes is the difference between success and demise on the Internet.
The online retailers see such taxes as a cost increase. The states see the lost sales tax revenue. In fact, Wal-Mart and Office Depot settled their Michigan state tax audits by agreeing to pay $2.4 million in sales tax. A study from the University of Tennessee puts the lost sales tax revenue for online sales for all the states at about $18 billion for 2006. By the end of 2006,18 states had adopted a uniform system for taxing online sales as a result of efforts by a group of businesses and state officials working together (Architects of the Streamlined Sales Tax Project). Their group was formed with the recognition that the tax was inevitable and that they were best served by helping to shape its structure, reporting, and enforcement.
The Supremacy Clause provides that when state and local laws conflict with federal statutes, regulations, executive orders, or treaties, the federal statute, regulation, executive order, or treaty controls the state or local law. However, in a variety of cases, a state law does not directly conflict with the federal law. Sometimes, the federal government just has extensive regulations in a particular area. In those areas of extensive federal regulation, the issue of which laws control can be resolved in Congress, which specifies its intent in an act. For example, Congress has provided that many federal credit laws can be circumvented by state law as long as the state law provides as much consumer protection as the federal law. In other words, Congress allows the states to regulate the field in some instances and sets the standards for doing so. Most statutes, however, do not include the congressional intent on preemption. Whether a field has been preempted is a question of fact, of interpretation, and of legislative history. The question of preemption is determined on a case-by-case basis using the following questions:
What does the legislative history indicate? Some hearings offer clear statements of the effect and scope of a federal law.