Since We’re Bad At Paying Online Sales Taxes On Our Own, States Want Retailers To Take Charge

If the ongoing battle between online retail giant Amazon and individual states has taught us anything, it’s that there’s a lot of money to be made from e-sales taxes. And since we as customers aren’t so great when it comes to paying those on our own, states across the country are ramping up efforts to have those taxes levied by the retailers themselves.

The Washington Post reports that there’s been a wave of states passing laws that will require consumers to pay sales taxes on anything they buy on the Internet, as soon as next year. In Maryland, legislators even want to levy taxes on songs and other digital products bought online.

Consumers are already supposed to pay sales taxes on online purchases by reporting purchases on state tax returns, but many people just don’t. All those tax dollars could give a boost to states’ revenue, to the tune of $23 billion each year, according to the National Conference of State Legislatures. Hence why the action in state capitals is helping to make the push for a proposed bill in Congress that could make collection of sales tax a standard practice on the Web, no matter where you’re shopping.

Amazon had been fighting against state taxes, using a 1992 Supreme Court ruling that said online companies didn’t have to charge sales tax if they didn’t have a physical presence in the state where a customer lived. They gave up that battle recently, agreeing to charge sales taxes in states like New Jersey and Texas, while finding ways to still profit from states like California in the process.

Online shopping isn’t going to go away any time soon — e-commerce generated $200 billion in revenue last year, and is up 15% in the first quarter of 2012 over 2011.

Amazon is also onboard with the latest federal proposal, the Marketplace Fairness Act, a bipartisan effort that appears to be moving forward. The bill proposes that a state can decide whether or not to enforce collection of its sales tax. If it does, then it must simplify its tax system according to conditions outlined in the bill. The bill exempts online businesses that make less than $500,000 a year from collecting sales tax, however.

States, Congress rallying for an e-sales tax [Washington Post]

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  1. Coffee says:

    Good…although I think that the states need to work with the federal government on this so that there isn’t any unpleasantness vis a vis the Tenth Amendment (and it appears they are already doing so).

    And before anyone mentions that this is just the states trying to find another way to tax us, this tax they will be collecting is a Use Tax that you’re required by law to report on your state tax return already. The fact that you haven’t been paying it doesn’t mean that it’s something new.

    • Blueskylaw says:

      Damn Coffee, where have you been? I was beginning to think that Bunk of America
      reposessed your computer, burned your house down and kicked your dog.

  2. az123 says:

    I have always been a fan of just setup an internet sales tax by the feds. the main issue retailers have is that they would have to deal with 50 different state laws etc… For online / mail order sales it would be nice if there was just a flat tax, and a state had an option, you get that or you get zero from internet sales. Then businesses just need to collect that based on which states want it and send in a check every now and then.

    I personally shop online for two reasons : 1) prices are lower to the point that sales tax is not even a concern and 2) I hate going out to malls and stores so if I can just have something delivered life is much better.

    • Murph1908 says:

      I don’t disagree with your idea. However, residents of Deleware and other states with no state sales tax would.

      But yeah, the 50 different tax laws is the main issue for many retailers, and the Amazon supported bill mentioned above seems to be going towards your idea.

      • Torgonius wants an edit button says:

        It’s not just different tax rates for each of the states. In many states, individual counties can set up an additional tax which may vary from county to county. Then, too, can individual towns and cities impose an additional tax.

        Then, there are zones (in NJ called Urban Enterprise Zones), where sales taxes are not charged at all, even though there are state and county taxes charged outside the UEZ.

        Now the database just grew from 50 states to tens of thousands of counties and localities and exemptions.

        To set up such a database would not be a difficult endeavor, capably done by pretty much any CIS student using MS Access.

        Maintaining said DB with accurate, current data, and making it secure and available at high speed to retailers, is a whole different ballgame. Who will be footing the bill for that project?

        • Johnmcboston says:

          It becomes more complex than just tax rates – different things can and cannot be taxed based on state/local rules as well. Those roasted nuts are food and tax free here, but a snack and taxed there. Is that hat taxed clothing or tax-free? or if it’s expensive enough does the luxury sales tax kick in?

          It’s easy to point to the big guys like Amazon, but would this kill the little mom-and-pop places that have sprung up on line?

          • BigHeadEd says:

            I agree with the complexity arguments but In the past I thought it was just fair for the online retailers to collect sales tax to even out the playing field for local retailers. Now, I’m not so sure because local retailers are getting some local benefit in the form of fire and police protection and other public infrastructure and sales taxes help support those services.

            • MaxH42 thinks RecordStoreToughGuy got a raw deal says:

              But the local retailers aren’t paying the tax, the local customers are. And since people have not been paying the use tax because they can get away with it and it’s slightly more trouble to do so than to pay sales tax at a local merchant, it does make sense to have internet vendors collect the tax.

        • Not Given says:

          Oklahoma has a data base they can download based on Zip+4

        • Evil_Otto would rather pay taxes than make someone else rich says:

          There’s a company called Avalara who does exactly that. They’ll resolve tax jurisdictions down to the rooftop level, based on origin and destination addresses.

        • Willow16 says:

          And in Elizabeth they charge a city sales tax even though there is no state sales tax charged so not much of a discount going to Jersey Gardens.

    • incident_man says:

      I live in Oregon and we have no state sales tax. Our income tax is at 9%, though. I’ll be damned if I’m gonna pay 9% income tax and then a sales tax on top of that!

      • RevancheRM says:

        Then, as I understand it, you have no worries. If there is no sales tax in your state, then there is no sales tax to collect. Amirite?

    • xcergy says:

      Sales Tax is designed for one store w one location and one tax rate. Across the US, there are 11,000 tax districts and NONE are defined by 9 digit zip code. Is cotton candy food, entertainment, or sugar? You may be taxed for one, none, or all three. Why should I know or care living 2000 miles away in another State?
      There are many sides to this debate, but the bottom line is that National/State solutions have done nothing to satisfy the requirements laid out in Quill v ND. It’s called SIMPLE, a word lawmakers do not have in their vocabulary.

    • PaulR says:

      I mean, c’mon, it’s the friggin 21st Century… Any decent bookkeeping software should be able to handle this.

      In Canada, retailers that do business cross-country collect the provincial sales tax applicable to the shipping destination. Counties don’t have sales tax, towns don’t have sales tax. And yet, we manage… (Mind you, a few more years of Harper…)

  3. Blueskylaw says:

    The problem with this idea is that when lawmakers get this “extra” money, they will just piss it away
    like they do with other “extra” money that happens to come their way (see cigarette settlement). I would be happy to pay the tax if it actually went to productive things such as debt reduction and needed services, but since it won’t, I feel I will spend it more wisely than any state or government agency.

  4. len says:

    What exactly are we getting for this “use tax”, and why aren’t we also charged “use tax” when we buy at a store?

    • nofunick says:

      Different term for same tax. Sales tax=use tax.

      • exit322 says:

        Sales tax and use tax are “almost” the same thing.

        Sales tax – tax on purchasing a sales taxable item in the jurisdiction where you bought it.

        Use tax – tax on purchasing a sales taxable item in the jurisdiction where you reside, but from a jurisdiction with no sales tax charged for its purchase. Not just internet sales, mind you – for example, if I bought clothes in Pennsylvania (and obviously used them where I live, here in Ohio), I should be paying use tax on them.

    • RedOryx says:

      Because at the store you are charged sales tax. Use tax comes into play when an item was not charged sales tax, such as out-of-state or internet purchases. Consumers are supposed to report and pay use tax on their own.

    • Coffee says:

      You are. It’s called a sales tax when you buy it in the store. The Use Tax is the same as the sales tax, except it applies to items purchased out of state and used within a state. It may not be a big deal when you buy a toaster, but when you purchase larger ticket items, it can make a difference. For example, Oregon does not charge sales tax. Not surprising, a shitload of car dealerships opened on the border between Oregon and Washington (where Vancouver, WA is). WA residents would mosey across the river, buy a car, and mosey back, not having to pay tax. It’s especially advantageous in the case because in Washington, you don’t have to pay state income tax.

      • nofunick says:

        Unless you are in the military, you must pay the sales/use tax in Washington when you register the vehicle. http://www.dol.wa.gov/vehicleregistration/usetax.html

        This holds true in all states. Otherwise, everybody in DC, Maryland, Pennsylvania and New Jersey would buy cars in Deleware.

        Same with boat sales, but, as John Kerry has shown, it is very easy to keep his mega-yacht registered in RI, with no sales tax, even though he lives in Mass.

        • Coffee says:

          I understand that, but like John Kerry, there are many individuals in Washington who have relatives in Oregon register a car there under one address, then drive it around in Washington. My example was more just to show why states care about use tax…we’re talking a significant chunk of change on a bigger ticket item, and smaller transactions online add up as well.

        • Karney says:

          RI has a 7% sales tax, higher than MA’s 6.5%..unless large ticket items like boats are in some special seperate tax area?

    • dangermike says:

      What I want to know is whether Use Tax has ever been appropriately challenged. Seems to me that most efforts to justify it are based on arguments that would pretty plainly define it as a protective tariff levied against out-of-state purchases and that, as such, the US Constitution has clearly reserved such taxation power to be the solely under the authority of the Congress.

      My gut feeling is this is why the taxes are self-reported and generally not enforced. PT Barnum would be proud.

  5. nofunick says:

    I know that the internet has increased cross border sales tremendously, but this situation has existed for decades with catalog sales (i.e, LL Bean, Cabellas, etc). Why wasn’t this issued addressed at that time?

    It should also be known that the sales tax remitted by in state businesses is actually discounted to give the retailer a tiny percentage of the tax for acting as the state’s collection agent. When the use tax is paid, the end user gets no such discount.

    • exit322 says:

      I think your first sentence answered the question. The reward probably wasn’t enough for them to bother with the “smaller” entities like LL Bean and Cabela’s selling stuff.

      Now, that reward is a bit larger.

    • josephpr says:

      What state gives the retailer a percentage? I have had to collect taxes for doing business in several states and have never seen that.

      As for why mail order wasn’t addressed, in the pre-internet era, it probably wasn’t seen as such a big deal, or as practical. It’s kind of hard for Amazon and other large on line retailers to argue that programming for tax collection is “too complicated” when they have no trouble writing code to keep suggesting things I might like to buy.

      Even for smaller internet business, it will probably be handled through a system like the toll collection systems, that collect all at once, then distribute to the appropriate toll authorities.

      • exit322 says:

        You get a 3/4% discount in Ohio if you file on time, I know that from filing taxes for a family business.

        Not a whole lot, but it’s better than nothing!

  6. mikedt says:

    State sales tax codes are a mess. In many states whether or not something gets taxed depends on what the end user is going to do with it. For example, buying zippers for coats? No PA sales tax. Using the zippers for pillows, sales tax owed. No online retailer should have to wade through that kind of crap.

    • rmorin says:

      All tax codes are a mess. This is on purpose so no one really knows how much they, or others pay.
      There is simply no reason (beside favoritism, and unwarranted social engineering) to have a tax system as complicated as we do in the U.S. You should be able to fit the tax code on the front and back of a standard piece of paper.

  7. thor79 says:

    I don’t mind it when an online retailer decides to start collecting taxes for people in the states they have operations in. The current system of requiring you to keep a record of all the transactions you didn’t pay taxes on is too much of a burden on the taxpayer. People will continue not to pay so long as that burden is there. They have to do it another way if they want that money.

    They need to make sure that we aren’t being double taxed though…with the state you live in collecting taxes, and the state you are buying from collecting taxes. So long as they can implement a fair system to collect the tax…I do not have a problem with it. Right now online retailers have a huge advantage over brick-and-mortar stores.

  8. Vegetius says:

    Question: Once the Feds see all that sales tax money passing through their hands, how long will it be before they start keeping some/most/all of it for themselves?

    Hint: How much of the Highway Tax on gasoline is actually spent on highways?

  9. Lyn Torden says:

    There is a simple solution to solve the complication for retailers to figure out which jurisdiction you reside in and look up the tax value for each of those. Instead of the retailers doing this, have the credit/debit card processors do it. They only need to look up your jurisdiction tax rate once per tax table update cycle, and store it with your account. The retailer just itemizes the different product types when charges are posted to the payment processor. They add the taxes and list it as tax on your statement under each charge that has any taxable sale.

    • xcergy says:

      Agreed. This system would work for B&Ms as well. I have been advocating for the CC processors to collect/remit (States pay related fees) for years.
      ~ States get instant funds
      ~ Reduction of paperwork
      ~ No privacy issues
      ~ Proposed exemptions in laws not needed
      ~ over 98% compliance

      • Chuft-Captain says:

        And then you run into a massive problem: The card company has no idea what you just bought. The store does not transmit an itemized list when approving a charge. So how does the card company know how much of a given purchase was taxable, non-taxable, special tax rate, etc? They don’t. For instance, here, food is not taxed. Snacks and most non-food merchandise are. The card company has no way to know how much of either was bought. ONLY the retailer has that info at hand.

        • xcergy says:

          Tax software is readily available to do just that. It’s a question of cost. Choices include alavara.com , vertex (what Amazon uses), and FedTax. These systems have all the coding factors which Payment processors could easily adapt to. It’s all about volume. Costs for a small online business like mine are 5-17% for each tax dollar collected. For a payment processor, that cost goes down to $.01-$.02 per transaction, which States would be more than willing to absorb that cost to get instant revenue. Problem is, lobby $$ and common sense stand in the way.

          Feel free to view my Facebook Group … stop.sales.tax.fees.NOW Join and help fight the cause!!!!!

  10. benminer says:

    “e-commerce”??? 1996 called and they want their vocabulary back.

    • Chuft-Captain says:

      They should change terms…why? E-Commerce is still a very standard term for doing sales online.

  11. BigHeadEd says:

    Enter text…

    • BigHeadEd says:

      “The bill proposes that a state can decide whether or not to enforce collection of its sales tax”

      Other than states with no sales tax, would a state actually decide to not enforce collection of revenue?

      • exit322 says:

        I think this is regarding the proposed requirement of online retailers to tack on sales taxes for all the states – if the state decides to include themselves in that requirement.

      • xcergy says:

        Yes. NH has that law on the books now.

  12. lovemypets00 - You'll need to forgive me, my social filter has cracked. says:

    I’d rather pay when I place the order than try to figure it out on my PA40 later. As of today, I owe the Commonwealth of PA about $3.00 and I’m not going to mail them a check.

  13. RobHoliday says:

    CC companies charge heavy swipe fees, but returns some of the fees to the customers via reward (points) programs. The retailers are the ones who lose. Quit with the “rewards” and charge a more reasonable swipe fee.

    • RobHoliday says:

      Sorry, wrong article. Hey Consumerist, did you know when you sign in, it takes you to a different page than the one you were viewing after you sign in? This wasn’t the first time I had this happen. I just didn’t catch this one.

  14. dush says:

    To the tune of $23 billion less that consumers would have to spend or live on, making them even more reliant on government services.

    • Evil_Otto would rather pay taxes than make someone else rich says:

      $70 a year is going to break you? Really?

      Put on your big boy pants and stop whining about taxes.

      • dush says:

        You seem to be gung ho about paying taxes. Go for it.
        That’s awesome $70 isn’t worth anything to you.

        • Evil_Otto would rather pay taxes than make someone else rich says:

          It’s not that it’s not worth anything to me, it’s that I don’t see a (minor) increase in taxes as a sign that we’ve morphed into a totalitarian regime.

          $70 a year isn’t enough to keep me up at night. You should probably Google the concept of “proportional response.”

  15. sjgarg says:

    As a Canadian small business that operates only in cyberspace, I’m not going to start keeping track of hundreds of different rates for various cities, counties, regions and states, and then collecting that sales tax on behalf of a foreign government.

  16. xcergy says:

    The numbers quoted in the article are BOGUS. $200B sales and $23B ‘lost’ revenue? That puts the sales tax rate Nationally @ 11.5%! The National average is under 7%. The numbers quoted also do not account for Use Tax collected now, which is above 5%.

    Even if online did collect tax, they can still outprice a B&M bc of lower overhead. Lawmakers want their piece of tax pie, but these actions will do nothing to ‘level’ the playing field.

  17. LadyTL says:

    I still don’t get why use taxes and the such are considered a good thing. I don’t pay them because I think they are illegal honestly. If I go somewhere else to buy something for whatever reason, vacation, online, etc.., why should I pay taxes in a places where I did not buy the item?

    • xcergy says:

      Lady TL, Good/Bad is a different issue. Use Tax (same as Sales Tax w a different name) is legal and has been on the books for over 80 years.The tax you owe goes to YOUR State for products you will receive and use IN YOUR STATE. In most States, it’s a line item on the tax form.

  18. jsimpson says:

    Since it’s too hard for computers to handle the states various sales tax rates, the easy way would be to charge the sales tax based on the origin of the shipment, not the destination. If the shipping warehouse is in Louisville, Ky, that’s the tax you pay, regardless of where it is shipped to. Brick and Mortar stores don’t seem to have a problem figuring it out. Of course states like Oregon would make out very well due to the influx of warehouse businesses.

  19. AngryK9 says:

    Yep. Now legalize Marijuana and sell it online too. I’m sure with all the marijuana smokers in the country, they’d make a killing on it.