The Fight Over Online Sales Tax And How It Impacts You : Nice Article

[Spartan]

For over 20 years, the internet has made purchases easier than ever in human history. With one-click buying and free-shipping programs, people have flocked online to buy nearly a quarter of a trillion dollars of stuff per year. Many of those transactions happen without the burden of sales tax, making online shopping not just convenient, but also cost-efficient. That may all be about to change.

 

 

WHAT'S GOING ON?

 

 

No matter which side of the argument you listen to, there's a problem with "fairness" when it comes to taxes on internet sales.

 

Here's the core of the issue: In 45 states (and the district of Columbia), you pay some kind of a tax when you walk down to your local bookstore and buy a copy of William Shakespeare's Star Wars. I live in Massachusetts, so I'll pay 6.25 percent, which goes into the general revenue of the state. If you're in California, you'll pay somewhere between 7.5 and 10 percent -- some of which gets split with local governments; some of which goes to the state. If you're in Alaska, Delaware, Montana, New Hampshire or Oregon, you don't pay anything.

 

But what happens when you buy that same copy of William Shakespeare's Star Wars online? That's where things get complicated. And like most complicated questions, the answer is: "It depends." If you buy it from Amazon.com, you'll pay your local sales tax if you're shipping to one of the 23 states where Amazon maintains some sort of physical presence. But if you live in a place where Amazon just hasn't bothered to build a warehouse yet -- like, say, Iowa -- you'll pay no tax at all, while your friendly local bookstore has to collect 6 percent to fund all of those rather flat roads.

 

That's not fair, right? Why should Bob's Books of Bettendorf, Iowa, have to compete with a tax-free Amazon.com? And shouldn't Iowa get its fair share too?

[Spartan]

Whats at STAKE?  Money....  250B$ approx...

 

 

There's real money at stake, but how much is open for debate. In 2013, states collected a total of $327 billion in sales taxes. That's a huge amount of money, and a big chunk of the total $1.2 trillion they collected from all revenue sources, including property and income taxes. We also have estimates that retail internet sales are about $233 billion a year. If we assumed that all of that $233 billion was subject to the average state tax rate of 5 percent, the very most that could be on the line would be under $15 billion. The real number that's not being collected is likely far, far less -– after all, a decent chunk of that $233 billion is likely coming from the internet giants like Amazon.com, as well as from the online sales of brick-and-mortar vendors like Walmart or Home Depot who are dutifully collecting sales tax. The number "$20 billion" in underpaid taxes gets thrown around a lot, but that's mostly political guesswork and difficult to reconcile with the actual sales numbers. Still, whatever the number, it's probably in the billions, and cash-strapped states are seeing green.

[Spartan]

WHY SHOULD I CARE?

 

 

 

The reason the tax-vague internet is back in the headlines is a concerted effort by small-business lobbying groups and the bill's sponsors to get it attached to legislation almost sure to be passed in this lame-duck December –- an extension of the ban on state and local taxes on your actual internet service as billed to you by your ISP. That bill –- the Internet Tax Freedom Act –- has nearly universal support, as the 10-year moratorium is due to expire on December 11th, and nobody in DC wants to head home for the holidays with an honest-to-god internet tax to levy on their constituents for Christmas.

 

As an internet consumer, it's important to realize that if you live in a state that collects sales tax, you're already supposed to be paying taxes on your internet purchases. A particular retailer may not be collecting them, but technically, you're supposed to keep track of all of your out-of-state purchases and voluntarily write a check to the state to cover those uncollected taxes on April 15th. Compliance with that technicality is so low as to be laughable in most states, but just because there's no cop on the freeway doesn't mean there's no speed limit. The trend is very much in the direction of the tax being collected, whether there's federal legislation or not.

 

Likewise, unless you're a truly tiny retailer selling a few hundred thousand dollars in goods over the internet each year, the writing is on the wall for you too. Even if the Marketplace Fairness Act never passes, states have taken it upon themselves to interpret the existing laws in ever narrower ways to ensure they can collect sales tax. In most states with sales tax, having any kind of referral program where you compensate people for sending you business is likely to trigger a collection requirement.

Sadly, the tax-free shopping boom of the last two decades is coming to an end, legislation or no. The passage of some version of the Marketplace Fairness Act might speed things along, and a concerted effort to delay could grant smaller internet retailers a few more years, but in the absence of some sort of federal policy, it's mostly a matter of time before individual states come knocking on your door to collect.

[ARYA]

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