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Online Gambling was effectively outlawed in the US yesterday. The legislation is intended to bring ‘fairness’ to the domestic gaming industry which has been harmed by the appearance of off-shore online only gaming companies. What does this mean for brick and mortar retailers squeezed by the Internet?

Online gambling was significantly impacting the domestic casino and gambling industry. The high end casinos still got the periodic visits from high rollers, and destination towns like Las Vegas draw folks for the experience, not just the gambling. I suspect that the ranks of Indian casinos, and second tier backwater (stronger language is avoided here) saloons saw a drop-off in revenues as low-end customers migrated their poker playing and sports betting to the Internet. Online gambling was poised to cleanse the weaker operators catering to middle class America.

The gaming companies have a legitimate grievance. They perform regulatory acrobatics to provide services domestically, but online providers face no such restrictions. Technology radically altered the playing field, and the gaming companies turned to the recipient of their protection money, the government. Now, government agencies will now be dispatched in a futile effort to regulate online sin.

If you’re like me, you could care less, but the trend here is clear. Government has now actively leveled the online/offline playing field.

More and more big ticket commerce is moving online, where the cost of shipping is more than offset by large savings in sales tax, as well as the substantially lower fixed operating costs of an online only storefront. Perhaps as part of its trip into and out of the financial ICU GM/Ford/Chrysler will seek to sell cars online and reduce their costly dealer distribution strategy. You could buy a car with no sales tax. It isn’t hard to make a list of companies that will eventually feel the pain induced by the tax advantages of online commerce.

What happens when WalMart (NYSE:WMT) decides that it is no longer fair that companies like Amazon (NASDAQ:AMZN) can bill and ship without incurring sales tax? Will municipalities start stopping UPS and Fedex trucks at town limits to impose duty? Federal regulation has so far prevented such activity.

The recent cave-in for online gambling makes me think twice that continuation of the internet sales tax holiday is a sure thing. I put the odds at an online VAT tax at 50/50 in the next five years. If you want to wager with me, I’m sorry, that is now illegal.

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Source: Distant Early Warning