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.

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Internet Sales Tax Coming Soon

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