- Days left

Online Sales Changing the Tax Game

a computer icon of a tax folder - online sales tax postNine in 10 retailers are expected to offer online deals today, Cyber Monday, according to the National Retail Federation. Those deals are expected to push online sales to $32 billion during the holiday season, up more than 10% from last year.

Numbers like these should have retailers salivating, and encourage state and local governments hoping to fill some gaping holes in their budgets caused by revenue shortages from the past few years.

Forty-five states rely on sales taxes on goods and services as part of their annual state budgets; the exceptions are Alaska, Delaware, Montana, New Hampshire and Oregon. Rates range from 4% to 8.25% at the state level, with local additions boosting rates to over 10% in some municipalities. That should translate into a combined boost of over $1 billion in sales taxes for those states that do charge sales taxes -- not a bad haul by any standards.However, state and local governments shouldn't start spending those dollars yet. It's estimated that nearly $19 billion in online sales and use tax will escape collection in 2010; by 2012, that number is expected to climb to $23 billion.

States have been trying to dream up ways to boost collection efforts in an effort to recover some of that lost revenue. Allowing online retailers to avoid collecting tax is, the states argue, unfair to local businesses that are subject to the tax. It also increases administrative costs at the state and local levels since many states, such as Pennsylvania and Massachusetts, impose a "use tax" on residents. A use tax is generally imposed at the same rate as a sales tax and is levied on residents of a state who buy products to use in the state. This means a product that might not have been taxed online (or that might have been physically purchased in another state, like Delaware, not subject to sales tax) must be separately reported by the taxpayer and the resulting tax must be paid. Realistically, few taxpayers actually report and pay use tax, leaving huge gaps in expected tax collections versus actual collections.

Of course, this doesn't mean states are ready to give up that extra revenue just yet. Some states are stepping up efforts to collect from taxpayers who refuse to report. In North Carolina, for example, the Department of Revenue is trying to force online giant Amazon.com to hand over its resident customer list so it can match up sales with reports. Other states, like Texas and New York, are making real efforts to establish a legal basis for collecting sales tax from Internet sales. So far, their success has been mixed.

It may finally fall to Congress to make the laws more friendly to states that are seeking to enforce sales tax laws based on "presence." At least one bill, H.R.5660, also known as the Main Street Fairness Act, has been introduced this year in an effort to subject online sales to the same tax scheme as in-person sales. The bill currently sits in the House Committee on the Judiciary, which means, for now, states are on their own.

This Cyber Monday, it may feel as easy as a click of a mouse to make online purchases, but the laws surrounding those purchases can be complicated. It's important to know what the rules are for sales and use tax in your state -- and to keep up with the changes. Technology is moving fast, and state taxing authorities are hot on the trail.

Increase your money and finance knowledge from home

Building Credit from Scratch

Start building credit...now.

View Course »

How to Buy a Car

How to get the best deal and buy a car with confidence.

View Course »

TurboTax Articles

Are You Exempt From Health Care Coverage?

The Affordable Care Act, or Obamacare, is an individual mandate that requires all eligible Americans to have some form of basic health coverage by 2014. Those without insurance will receive a penalty when they file their tax returns ? that is, unless they have an exemption. TurboTax's Exemption Check can help you find out whether or not you qualify for an exemption.

Essential Tax Forms for the Affordable Care Act

The Affordable Care Act (ACA), also referred to as Obamacare, affects how millions of Americans will prepare their taxes in the new year. The law now includes penalties for all who haven?t obtained health insurance -- and those penalties are expected to be paid at tax time. The ACA also provides tax credits to help people pay for insurance, and you can claim those credits when you file your taxes. The Internal Revenue Service (IRS) has introduced a number of tax forms to accommodate the ACA.

Mortgage Refinance Tax Deductions

When refinancing a mortgage to get a lower interest rate or obtain more favorable loan terms, you're really just taking out a new loan and using the money to pay off your existing home loan. In general, the same tax deductions are available when you're refinancing a mortgage as when you're taking out a mortgage to buy a home.

How to Determine if You Have Minimum Essential Coverage (MEC)

The Affordable Care Act, also known as Obamacare, requires most Americans to have health insurance that meets a government standard known as "minimum essential coverage," or MEC. Whether your insurance qualifies as MEC depends not on the plan itself, but on how you obtained your coverage.

Rental Property Deductions You Can Take at Tax Time

Rental property often offers larger deductions and tax benefits than most investments. Many of these are overlooked by landlords at tax time. This can make a difference in making a profit or losing money on your real estate venture. If you own a rental property, the IRS allows you to deduct expenses you pay for the upkeep and maintenance of the property, conserving and managing the property, and other expenses deemed necessary and associated with property rental.

Add a Comment

*0 / 3000 Character Maximum