Should you be worried about online sales tax?

If you buy online, you might have noticed sometimes you don't pay sales tax. Soon that might not be the case. This week the Senate passed a bill designed to make it easier for online retailers to charge the tax.

So how will this change the way online retailers do business and what will it mean for consumers?

Diane Yetter, president of Yetter Tax Consulting and founder of the Sales Tax Institute, explains how the current online sales tax system works.

"Today, retailers or any seller that maintains a physical presence in a state is required to collect tax when it makes sales to customers in those states regardless of the method of ordering... whether you go into a store, you order through a catalog or -- as most people do today -- order online. So if the retailer has a retail store, somebody like Walmart, who has stores all over the place, then they are required to collect sales tax whenever they ship to costumers in states where they have stores," says Yetter.

Stores that have a warehouse in the state are also liable. That's why "Amazon and other more traditional online retailers without retail stores have to collect tax in the states where they currently maintain warehouses or maybe even employees that are working on their behalf," she adds.

But this isn't the first time the federal government has tried to implement a more universal online tax. The Supreme Court first addressed the issue in the early '90s.

"In the decision, back in 1992, which was the Quill corporation case, the Supreme Court actually asked Congress to deal with this," says Yetter. "So we've been waiting for Congress to deal with this since 1992 and there have been bills that have been proposed virtually every year since then."

So why is it resurfacing now?

"At this point, I think what's really triggering this is a couple of things. The first is the sheer explosion of online business, and then also just the economic conditions of the states, that they are really hurting for money," says Yetter. "This is a way that the states can collect revenue that is actually due. So this is not a new tax at all -- these are taxes that have been due. It's just that the consumers either are not aware of it or just take the position that, let the state come find me. And the retailers right now are not obligated or have the requirement to collect the tax today."

If the bill does go forward -- and businesses have to retool departments or hire more personnel to deal with the complicated new state tax regulations -- will that mean even higher prices for online consumers, in addition to the new taxes?

"There will be some additional costs that the retailer will incur, but at the same time, there's competition in the marketplace," says Yetter. "Certainly a lot of consumers are saying they don't want new taxes to be imposed on them, but this really isn't a new tax -- this is a tax that has been out there. In terms of consumer behavior, a lot of the studies that I've seen say that consumers are likely to still continue buying online for the convenience of it."

There's at least one group that could see some positive change if the new laws are adapted though -- old-fashioned brick-and-mortar stores. "Certainly, what it might do is curb some of the activities where people are going into store, checking out the merchandise and going home and buying it online," says Yetter. "It might be that they will actually just start buying from the merchant directly."

About the author

In more than 20 years in public radio, Barbara Bogaev has served as the longtime guest host of NPR’s flagship program Fresh Air with Terry Gross, as well as host of APM’s news and culture magazine, Weekend America and the weekly national documentary series, Soundprint.
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It is very important to inform yourselves when buying from on-line stores, some of them may have additional taxes and they don`t inform their clients about that. I liked when I bought uniforms from http://www.uniformstoyou.com/healthcare.aspx, they don`t have any hidden taxes and their prices are very affordable, hopefully the new sales tax won`t impact their business a lot.

I see it as Amazon's way of keeping competition from hurting them. making small businesses collect sales tax and then pay it out adds an expense that hurts when you are running a two person shop. Amazon can hire people to track and maintain the sales tax per city, state, zip code. Can afford to develop software to do that based on where you pay from and where you ship to.

Small businesses could just pay Amazon for the software that does this and give Amazon 2.5% of the sale on top of that...oh, most businesses starting out have 1 to 2% profit margins? Too bad. That is the corporate way, use the Fed Gov to crush anyone who might compete against you.

Proponents of this bill say it will be easy. REALLY? Have they ever tried to integrate tax software into a customized shopping cart? LOL!! Even if we take them at their word "only one state tax rate" and "perfect running software to calculate", HOW DO PAYMENTS GET REMITTED to all 46 states? Do we write 46 monthly checks?


Not all small merchants run automated and to input additional information by hand is time consuming and takes time away from normal business operations. What about audit risk? Can the tax board in Tennessee come after a merchant in Florida? Is it moral to burden an out of state merchant to collect taxes on behalf of a state they don't live or work or vote in? Why not ask China or Mexico to collect Tennessee taxes? Is this constitutional? Will surely be challenged in the courts, but why this legislation is truly harmful is that in such a weak recovery (check labor participation rate, wage growth, hours worked, etc.) you are burdening the very small businesses that are one of the only sources of growth in our economy. Hiring in this sector will freeze or decline and companies that are mobile and of large enough scale will simply move offshore. Our tax code is already written in a manner that encourages large companies to domicile offshore, this legislation encourages the medium and even portable smaller sized USA businesses to join them in order to compete with websites that won't have to collect this tax in the Caribbean, Mexico,
Canada, etc. The tax revenue will come right out of the pockets of the average American family and the extra $$$ our citizens will have to pay means LESS money in their pockets to spend locally.

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