Online Sales Tax For (Almost) All Inches Closer To Reality

The halcyon days of not paying sales tax (even though you’re obliged to) on your Amazon purchases may be coming to an end once and for all, as members of Congress are doing more than just talking about the issue. Next Tuesday, the House Judiciary Committee will hold a hearing on the merits of creating a law allowing states to compel online retailers to collect sales taxes.

As a result of a 1992 ruling by the U.S. Supreme Court, many online retailers have been able to get away with no collecting taxes in states in which they don’t have a physical presence.

In recent years, cash-strapped states have gone after e-tailers — specifically Amazon — by saying that affiliate programs, which allow smaller, sometimes brick-and-mortar, vendors to sell items through Amazon effectively creates a physical presence in that state.

Alternatively, some states where Amazon has a physical, but non-retail, presence in the form of distribution centers, have claimed the company must collect sales tax on purchases. When Texas first attempted this, Amazon responded by closing its distribution center there. However, the two parties have recently settled, with Amazon agreeing to both collect Texas sales tax and make capital investments in the state.

The Wall Street Journal reports that some lawmakers at both the state and national level have been reluctant to push too hard on the online sales tax topic during an election year for fear that it would be spun as supporting a tax increase, (when in fact we are all already legally obligated to pay any applicable sales taxes, whether or not a retailer collects it).

Online retailers raked in around $200 billion in sales in the U.S. last year. But it should be noted that sales tax was collected on some of these sales, as many of the largest e-tail sites are operated by bricks-and-mortar retailers. And some of that $200 billion came from items that some states don’t consider taxable — like clothing and unprepared food or prescription drugs — regardless of whether it’s sold online or in a store.

Five states — Alaska, Delaware, Montana, New Hampshire, Oregon — have no statewide sales tax, though Alaska, Montana, and Oregon allow local municipalities to charge capped sales taxes.

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  1. scoosdad says:

    An interesting feature of this legislation would require states who decide to collect sales tax (and which ones wouldn’t?) to provide free software to retailers in order to calculate the correct tax to collect in the jurisdiction of the sale, because of the complexities in some places due to local and county taxes in addition to state sales tax.