Amazon and other online retailers like EBay might not be able to dodge the tax collection business for much longer as States try increasingly to find new areas of revenue. Over the last couple of weeks, both Colorado and California have started passing legislation in one form or another that will mean that Amazon will have to seriously work on collecting sales tax.

Amazon, EBay and its myriad rivals have all had a very long free ticket about not collecting state sales tax. Although Washington State people who order off of Amazon pay Washington State Sales tax on a regular basis, Colorado, California and other states are back on the “collect state sales tax” bandwagon again this year. Last year Amazon and many other companies banded together to help stop the process. But as the recession drags on into its second year, cash strapped states are looking at online sales tax as one way of digging themselves out of a deficit or not have to cut back any further on critical support programs.

This is a double edged sword for many of the companies doing business online. For more than 10 years sales on internet purchased items have been free of many of the taxes that we pay when we go to the physical store. This has been a huge competitive advantage over the local corner bookshop or the larger brick and mortar operations like Barnes and Nobel as well as Boarders. Add to that the advent of market pricing on books down to a penny, it is often very easy to find a brand new hard cover book going for one cent on Amazon, that even with the 3.99 dollar postage that a person pays makes the entire sales tax argument moot. What is 8.5% of 1 penny? You would have to sell 100 penny books to make 8.5 cents in sales taxes. This is not the way to dig a state coffer out of a fiscal deficit, 8.5 cents does not go very far at all.

This does not include the regularly priced books, but competition is fierce on Amazon, EBay and other systems like Alibris who will all end up collecting sales tax on deeply discounted items. It would be interesting to see what this move actually adds to the state budget because odds are highly likely that when states go and do their price comparisons they are pulling the normal suggested retail price and not taking into account that almost everything on any ecommerce site is so deeply discounted that actual state revenues are going to be minimal at best.

Taxing the sales though online is fair and probably an idea well past its time. Although this might dent online sales, it will not for long because the long term damage is already done to the local marketplace. The corner bookstore is dead. Many of the Mom and Pop operations who did not or could not go onto the internet or did not start selling deeply discounted items on Amazon, EBay, Alibris, or the host of other sites is already gone. People have no place but Wall-mart for some items where they will pay state sales tax. Other items are only available online; they just are not available in the brick and mortar world. In the end, shoppers will still find deep discounts online; they just might have to pay tax on it for a change. At least the sales tax will be on the final value of the product, and not on the full price value that the states are probably basing their tax estimates on.