The debate over taxing internet sales has been heating up. In this article, we pull out the magic ball and have a go at making an internet tax prediction for 2011. 

The internet tax is one of the more mangled areas of law and tax we have. The question is fairly simple. Can the states force online retailers to collect and pay sales tax on purchases by residents of those states? It is amazing such a simple question could cause so much angst. 

The current answer to our ultimate question is “maybe”. Yes, maybe. The United States Supreme Court has held that forcing a catalog company to collect and pay sales tax in all the states is excessively burdensome. So, is an internet company like Amazon effectively a catalog company? It argues as much while states argue just the opposite. 

This has resulted in a huge mess at the state level. Some states like New York require sales tax to be collected and paid. Amazon is currently fighting these states in court. The problem is the courts take just about forever to process these cases. Even when they do finally rule, there always seems to be an appeal ready to go to move it to the next level. 

Okay, so what can we predict for 2011 in regard to internet tax? The answer seems fairly clear. States are desperate for tax revenues. We are going to see more and more of them pass laws trying to establish this form of tax. Amazon and other companies will continue to fight them. There will be no universal resolution. It is as simple as that. 

Well, what about the Supreme Court? It takes years for a case to wind its way up to the ruling court of the land. 2011 will not be the year that happens, but it may in 2012. Until then, we’ll just have to keep thrashing along trying to figure out what is going on in this area. That means more laws and more lawsuits.