Sales Tax for Buying Online: Retailers and Buyers Take Note

Last updated on May 6, 2022

The US Senate may pass the bill it is currently debating regarding sales tax for online retailers regardless of geographical boundaries. Until now, retailers only collected taxes on sales from customers who live in the state in which the company has a physical store. The bill, if it becomes law, will make it easier for online retailers to collect taxes from any and every sale irrespective of where the customer is.

The murkiness of the sales tax laws for online purchases gave internet retailers an edge over brick and mortar stores. Considering the increase in the number of online purchases and predicting the trend is there to stay, lawmakers are now eager to change sales tax laws for online retailers.

It is not only tax laws, but compliance issues that lawmakers believe is the real issue. Huffington Post carries forth the baton: “Only Delaware, Montana, New Hampshire and Oregon have no sales tax. Alaska has no state sales tax but does have local ones.

Unpaid sales taxes are usually referred to as “use taxes” on state income tax returns. Use taxes apply to purchases made over Internet, from catalogs, television and radio ads and purchases made directly from out-of-state companies. State officials, however, complain that few people pay these taxes, Olsten (director of the Washington office of the National Conference of State Legislatures) said.”

Lack of tax compliance with the current sales tax laws will change when online retailers will charge sales tax from any taxpayer who makes a purchase. Under the new law, the states will enforce that online retailers collect taxes for selling products on the Internet. Huffington Post shares that “under the bill, the sales taxes would be sent to the states where a shopper lives.

Businesses with less than $1 million a year in out-of-state sales would be exempt.

The Senate is expected to pass Enzi’s bill Monday. Already, the measure has survived three procedural votes. President Barack Obama supports it, but the bill faces an uncertain fate in the House where some Republicans consider it a tax increase.

Supporters say the bill is about fairness for local businesses that already collect sales taxes, and lost revenue for states. Many governors, both Republicans and Democrats, have lobbied the federal government for years for the authority to collect sales taxes from online sales.

The issue is getting bigger for states as more people make purchases online. Last year, Internet sales in the U.S. totaled $226 billion, nearly 16 percent more than the previous year, according to Commerce Department estimates.

States lost a total of $23 billion last year because they couldn’t collect taxes on out-of-state sales, according to a study by three business professors at the University of Tennessee. About $11.4 billion was lost from Internet sales; the rest came from purchases made through catalogs, mail orders and telephone orders, the study said.

The study was done for the National Conference of State Legislatures.”

With a dozen tax changes already in effect, the change in online sales tax will keep taxpayers busy discovering and discussing taxes.