Sales Tax on the Internet?

One of the ‘benefits’ enjoyed by customers who purchase via mail order is that in most cases sales tax can be avoided. With the popularity of the Internet the last few years, mail order purchasing has become much easier for more and more people. This has been the cause of some concern for State and local tax authorities, who are seeing a very large revenue base getting away without paying.

What most people do not realize is that if sales tax applies to a local purchase, it also applies to a mail order purchase. The lawmakers realized that having the vendors collect and pay this tax would be a logistical nightmare, so they decided to collect it in other ways. Technically speaking, anyone who purchases via mail order is supposed to file that tax obligation on his/her income tax return, however almost nobody does this. The effort it would take to collect these revenues have always been considered more effort than it is worth.

As internet sales have grown, the loss of revenue has become more of a concern to state and local governments, so that now there is quite a ‘push’ to implement some method to collect these taxes. The most likely implementation (if they do decide to try this), would be to force the vendor to collect *all* sales tax, and forward these revenues on to the appropriate state tax collection agencies. In order to accomplish this, software would have to be provided that would keep track of the tax rates for each zip code, and to calculate the amounts to be paid each year.

Whether this would have any large impact on mail order sales or not we are not willing to speculate on at this time, however it is obvious that some mail order firms would be affected more than others. Some companies have intentionally located themselves into ‘no tax’ states to take advantage of the current laws. These would most likely be hit the hardest. Vendors who operate in states with higher sales taxes would probably benefit the most, as their local customers would no longer get any benefit from shopping elsewhere just to save on taxes. For example, California sales tax is in excess of 7.5%, which is more than some vendors mark their prices up!

An article was originally published at on this issue, although the link no longer work.

Be the first to discuss this article!