Taxation of online transactions is currently a hotly debated issue in the E-commerce world, as well as in the judicial system. Before online transactions were commonplace, the rule was that if you lived in a state with sales tax, you paid sales tax on your transactions. If you lived in a state without sales tax then you were exempt from paying the sales tax. The internet has gone and complicated yet another good thing, of course.
Now, retailers who sell goods and services online have to be very careful. If they have a physical presence (aka Nexus) within the state their customer is ordering from, and that state has a sales tax, then they can charge sales tax on the transaction. If they are engaging in a transaction with a customer from a state where they have no Nexus, then they do NOT have to collect sales tax (http://www.sba.gov/content/collecting-sales-tax-over-internet). Little did I know, before researching this subject, that in these cases, the customer is responsible for still paying that tax, except it isn’t considered sales tax, it is then called “use tax“. Definitely worth looking into so the IRS doesn’t come after you!
Statistics show that in 2013 the United States lost nearly $23 Billion in uncollected sales tax. (http://www.ecommercetimes.com/story/79544.html). In 2012, Washington State alone had $281,900,000 worth of uncollected sales tax due to online transactions (http://www.ncsl.org/research/fiscal-policy/collecting-ecommerce-taxes-an-interactive-map.aspx). “Sales taxes account for over a third of revenues for most states, including over half of tax collections for six states.” “With nearly every state still facing budget shortfalls, this revenue could help fund police, school teachers and other much-needed programs.”(http://www.ncsl.org/research/fiscal-policy/collecting-ecommerce-taxes-an-interactive-map.aspx). So tax reform is upon us once again, and this time it’s taking on E-commerce.
“The U.S. Senate voted May 6, 2013 to approve the Marketplace Fairness Act (MFA), S. 743, by a vote of 69-27. The NCSL-supported legislation is now before the House of Representatives’ Judiciary Committee for consideration. The MFA authorizes states that adhere to certain simplifications to require out-of-state retailers that have more than $1 million a year in out-of-state sales to collect and remit that state’s sales taxes. The legislation also requires states to provide software to online retailers free of charge and removes any liability from the retailer should the software malfunction” (http://www.ncsl.org/research/fiscal-policy/collecting-ecommerce-taxes-an-interactive-map.aspx). The MFA is being championed by many retailers, as well as The National Governors Association, the National Conference of State Legislatures, and the National Retail Federation.
At the same time, there are several larger business such as Ebay and Etsy, that feel that the MFA is going to ruin things for their independent sellers. The sellers don’t necessarily meet the $1M a year cap that the bill imposes, and in the bigger picture, this could take a huge bite out of profits. Another issue opponents cite, is that the bill is not nearly as detailed as it needs to be to adequately attend to the needs of each and every business it covers. Additionally, the software requirement does not completely remove the necessity of having a human being processing all the complicated sales tax issues each business will face. This means that more funds will be allocated towards new positions, and in turn, there will be smaller profits for companies (http://marketingland.com/online-sales-tax-whyecommerce-companies-are-on-both-sides-of-the-debate-43395).
As much as I’d love to not pay sales tax on internet transactions, I really think that given all the evidence available, the smartest thing to do is to find a way to require and regulate sales tax be paid on online purchases. The MFA can be amended down the road to cover all potential issues that arise, and the long-term effects of the bill being put into action will help bolster our nation financially. If you’re looking for a way around paying sales tax, you can find one if you do your research. Otherwise, every time you see those extra dollars on your bill, just think about how you’re contributing to our economy’s growth!