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Internet Sales Tax Coming Soon

Written by Nickel - 12 Comments

Internet Sales Tax Coming Soon

While we’re on the topic of sales tax holidays… The ongoing sales tax holiday for online purchases appears to be on its last legs.

For the record, you’re supposed to pay sales tax for online purchases (assuming you live in one of the 45 states with a sales/use tax) when you file your state tax return, but most people don’t. Well, soon you may not have a choice in the matter.

The House Judiciary Committee recently held hearings on the Marketplace Equity Act of 2011 (H.R. 3179) — in fact, there are actually three federal bills relating to internet sales taxes floating around Washington, D.C. At the same time, Amazon seems to have dropped their vehement opposition to online sales taxes.

Assuming that the Marketplace Equity Act (or something similar) makes it into law, states would be allowed to require “remote sellers” to collect sales taxes on their behalf. So-called “small sellers” (those with sales of $1M or less nationally or less than $100k in a given state) would be exempt from the requirement but, otherwise, the tax-free party would be over for online shoppers.

And before you start getting into a Constitutional huff, consider this: while the Supreme Court ruled 20 years ago that states cannot force an out-of-state merchant to collect sales or use tax unless it has a physical presence (i.e., a nexus) in the state, this prohibition applies only to states. A national law would be perfectly legal under the terms of this ruling.

It’s also important to remember that this wouldn’t be a new tax. You’re already on the hook for these taxes whether or not you’re actually paying them. Any new legislation would just produce a concrete mechanism for collection.

I’m not sure about you, but this sort of legislation wouldn’t change my shopping habits. I don’t shop online to avoid taxes. I shop online for convenience, better prices, and the far (far, far, far!) better selection that you get vs. most brick and mortar retailers.

Yes, I realize that this puts me at odds with “shop local” movement, but the simple fact is that I can’t find much of what I need at a local (much less locally-owned) store. Sad but true. Don’t get me wrong… I do go out of my way to shop at a handful of local merchants (e.g., our local hardware store and a handful of downtown merchants) but it’s tough when there are so few options left.

While I realize that Walmart, Best Buy, and the like do employ some locals, the truth is that the vast majority of their revenue goes elsewhere. Thus, as I noted above, I tend to let convenience, selection, and prices rule the day when I’m left with a choice between buying online and buying a local big box retail location.

What about you? Will a change in the tax treatment of online purchases change your shopping habits?

Published on August 1st, 2012
Modified on August 15th, 2012 - 12 Comments
Filed under: Consumer, Taxes

About the author: is the founder and editor-in-chief of this site. He's a thirty-something family man who has been writing about personal finance since 2005, and guess what? He's on Twitter!

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12 Responses to “Internet Sales Tax Coming Soon”

  1. 1
    Ornella @ Moneylicious Says:

    Similar to you: No. I will still shop online. I do it for the convenience.

  2. 2
    Chris Says:

    I have been paying most of taxes from my online purchases–at least the ones I could track down when tax time comes (it’s easy with Amazon and Wal-Mart because they have your whole buying history readily available, but with other purchases I don’t often have my receipts). I’m fine with paying sales tax online–I frankly think it is really the only fair thing to do, and actually it helps level the field for local stores who must collect sales taxes.

  3. 3
    John Says:

    I’ll still shop online as much as I do now. Even with sales tax and even shipping, online is still (but not always) cheaper. You have to shop around, depending on what you’re looking for. It’s hard to find many things locally anymore, and I agree there is the far (far far far!) better selection that can be found online. Nothing is worse than going to the brick and mortar store to find that the thing you were going to purchase is waaaaay more expensive than can be found online (dealership auto parts anyone?)

    I think if local shops were really savvy they would start getting their inventories online. Easily navigable sites with great descriptions and pictures of their products would help them stay competitive. Online shopping isn’t always the best experience, and local shops can offer that touch of customer service that online only businesses cannot.

  4. 4
    Jerry Mandel Says:

    Local merchants cry about no sales tax for online purchases. They carefully fail to note that they have an advantage in no shipping costs.
    Also, how can online vendors pay taxes to ~35,000 taxing places?

  5. 5
    HantonB Says:

    [ "And before you start getting into a Constitutional huff... A national law would be perfectly legal under the terms of this ruling. " ]

    Nonsense !

    A “national law” can NOT over-rule the Constitution/Commerce-Clause.

    Individual states (or counties/cities/towns) can NOT tax anything outside their legal, geographic jurisdiction. Legal “jurisdiction” is a bedrock principle of Anglo-American law for many centuries.

    Of course, every government entity at every level in the U.S. would love to tax everything, everywhere — but the most basic legal principle is “jurisdiction” to impose any tax.

    Politicians at every level love tax revenue. Federal & State Constitutions rarely deter their tax lust. And in such a non-legal legislative environment — there’s no practical defense against the states’ choosing to impose BOTH a sales-tax & use-tax on the same item (double tax) in the future.

    Note that this proposed ‘national law’ does NOT replace state internet sales-tax laws — it merely imposes Federal punishments on retailers who don’t collect/remit state taxes on out-of-state sales.

    The proposed law is legally absurd — but that’s the way Congress routinely operates.

  6. 6
    BG Says:

    It is about time!

    #4 Jerry) Local merchants shipping costs are already embedded in the sales price.

    #5 HantonB) A state can absolutely tax items when they cross their borders, they do it all the time. As nickle said, these taxes are not new: you are supposed to be paying them already.

    What is changing is enforcement: so it will not be so easy for tax cheats to avoid these already existing use taxes.

  7. 7
    spudly44 Says:

    I’m amazed by the number of Americans so eager to pay taxes of any kind and feel so “patriotic” about it that any one that even speaks against more taxes is a “tax cheat” and somehow “unamerican”. What are retailers of any kind paid to be the gov’t tax collector? Threat of severe punishment for not doing so. Because some judges(paid with taxes) says its legal doesn’t make it right to force anyone to spend their own time and expense to be a tax collector. When did we become such “All American Sheep.”

  8. 8
    Kirsten Says:

    I have never shopped online to avoid sales tax. I shop online for the same reasons you do and I will continue to do so. Legislators try to pass off this enforcement as a way of promoting local merchants, but it’s really about upping sales tax revenue for the states.

  9. 9
    BG Says:

    spudly44 #7) These aren’t “more” taxes. These are taxes that us HONEST Americans have already been paying. It’s about time that you others start paying what is, and has been, LEGALLY required before the Internet even came into existance.

    If you don’t like these sales/use taxes, then complain to your own elected State-Representatives so your state can become like one of the other 5 states (ex: New Hamshire) without sales/use taxes.

    I’m amazed at the number of American’s that want to free-load off the rest of us honest tax-paying people.

  10. 10
    RCS Says:

    “While I realize that Walmart, Best Buy, and the like do employ some locals, the truth is that the vast majority of their revenue goes elsewhere”

    The SALES TAX does NOT go elsewhere. It goes to state, and local entities such as fire, and police. Next time you call one, and they can’t come because of budget cuts, maybe call your favorite on-line merchant for help

  11. 11
    Kelly@Financial-Lessons Says:

    If you know where to look, you can always find cheaper items online then in the actual stores. Taking into account sales tax and shipping and handling, the discounts and sales that are available online can still save you a good amount of money. Of course, you can’t buy everything online, but the items that aren’t a shot in the dark, will still be better off bought on the internet.

  12. 12
    Dolores Says:

    I got this website from my buddy who shared with me about this website
    and now this time I am browsing this web site and reading very informative
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