Online Sales Taxes May Be Coming Soon

It seems there’s one thing Democratic and Republican senators might agree on these days: forcing out-of-state companies to collect sales tax for online purchases. A bill has been proposed, but until it passes, here’s what you can do now to pocket the cash that might otherwise go to the taxman.

Buy a product at a local store and, in most states, you’ll pay sales taxes of as much as 10 percent. Buy that same product online from an out-of-state company, and it’ll normally be shipped to your door without that merchant adding sales taxes.

But you knew that, right? Here’s what you probably didn’t know: In many states, you’re supposed to be paying those taxes anyway, either by sending in the appropriate sales tax to your state, or its closely-related cousin, a use tax (essentially, a tax levied by the state on any item not subject to sales tax).

Of course, legal or not, virtually nobody pays sales or use taxes to their state for out-of-state purchases. But that sales tax holiday might finally be coming to an end.

Businessweek recently reported that a bipartisan group of U.S. senators has introduced what they’re calling the Marketplace Fairness Act [PDF], which will make it easier for states to require online, out-of-state businesses to charge and remit state and local sales taxes.

While many online retailers are obviously against this bill, feels that some form of online taxes is inevitable, and the company is looking for a solution like this bill that creates a uniform system and controls the administrative costs of collecting taxes for every city, county, and state. You can read their press release expressing their support of the bill here.

One way To Save On Sales Taxes Now

While the letter of the law may currently rely on consumers to voluntarily remit uncollected sales and use taxes, there is at least one thing that consumers can do to save money: Make sure retailers don’t apply sales tax to pre-discount totals. I’ve made purchases with coupons and other discounts, only to find that the merchant calculated sales tax on the original price. Yet in every state that I’ve researched, this is simply wrong: Iowa’s Department of Revenue is clear on this issue, as is Florida’s, Colorado’s, and New York’s. The exceptions are typically rebates and vouchers for reimbursement issued by manufacturers or the government. In most cases this happens when I use coupons at restaurants, but I have even caught an auto dealer overcharging tax on discounted auto parts. In these cases, it is hard to say if an unscrupulous merchant is padding its bottom line under the guise of sales tax or if their poorly programed computers are actually collecting and paying extra taxes. Either way, it makes sense to learn the laws of your state and make sure your retailer is not collecting more sales tax then they should.

Today’s consumers can still enjoy ordering goods through the mail without having the merchant collect taxes – but that may change. In the meantime, you can at least be sure that you are still being charged the appropriate taxes when you save money by using coupons and other discounts.

Stacy Johnson

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  • BC

    Collecting sales tax is going to be very painful for any online vendor.  Using the state of Georgia where I live as an example:

    Sales tax can range from 4% to 8% depending on your location.  It breaks down like this:

    4% — State level sales tax.  Groceries, “certain” medical devices and prescription drugs are exempt.
    0%, 1% or 2% — Optional county level sales tax varies by county.  No exemptions.
    1% — Special MARTA sales tax for Fulton and Dekalb counties only.  No exemptions.
    1% — Special sales tax for City of Atlanta only.  No exemptions.

    So if I order a mix of food items and DVD’s from Amazon, will they be smart enough to exempt the food items from the state-level %4 sales tax, while charging 2% Cobb County sales tax for the entire purchase?  I have my doubts online vendors will be careful enough to drill down to that level of detail.  At least all sales tax collected only has to be sent to one entity:  The Georgia Department of Revenue, which handles distribution to the counties and City of Atlanta.  How this works in other states I do not know.

    There are 154 counties in Georgia alone, and over 3,100 counties nation-wide.  That should give you an idea of how complicated sales tax collection will be.

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