Online Sales Growing, Online Sales Tax Expanding
- May 15, 2014 | Gail Cole
Online sales are still on the rise, according to a recently released forecast from Forrester Research, Inc. Revenue from online sellers accounted for 8% of all U.S. retail sales in 2013, or $263 billion. By 2018, that percentage is expected to reach 11%, or a whopping $414 billion.
Increased shopping via mobile devices is one reason for the rise, as is the coming of age of “digital natives—consumers who grew up using the Internet from their earliest years.” Digital consumers are moving into their “prime spending years,” between 25 and 33 (Internet Retailer).
If all this growth will affect delivery service (remember the holiday season delivery debacle of 2013?), it will also impact states that rely on sales tax revenue and the businesses that sell to customers in those states.
Marketplace Fairness Act of 2013
Most states (45 out of 50) have sales tax. As a general rule, those states want to be allowed to impose a sales tax obligation on remote vendors with no current obligation to collect. The Marketplace Fairness Act of 2013, federal legislation approved by the Senate in May 2013, would grant them the power to do just that. However, it has languished in Congress, where the House Judiciary Committee is working on a revision.
Proponents speak of fairness: when online sellers don’t charge sales tax they have a price advantage over collecting Main Street sellers. They also speak of dollars: sales tax revenue lost to exempt online sales.
Yet not everyone supports online sales tax. Many if not most internet sellers oppose the tax, as do many lawmakers in states without sales tax, notably Montana. And remember those digital natives? They tend to oppose tax on their online purchases.
10,000 + tax jurisdictions
One argument against online sales tax is the complex nature of sales tax itself. There are more than 10,000 sales tax jurisdictions in the United States: various combinations of state, county, city, and special district taxes. On top of that, some states allow localities to administer their own taxes, meaning sellers have to remit multiple tax returns in the same state per tax period.
In response to this complexity, the Marketplace Fairness Act of 2013 sought to compel states to simplify their taxes. In its current form, only states with simplified sales tax could require remote retailers to collect, and only those remote retailers doing a certain amount of business in the state.
States seek solution
Lacking a federal solution to the problem of online sales tax, states are coming up with their own. According to the Wall Street Journal, “Finance executives at online retailers face an increasingly complex patchwork of state rules to collect sales taxes as hopes fade for an overarching solution from Washington this year.” Summer recess is fast approaching.
Already, numerous states have laws requiring most large online retailers to collect sales tax. Several states have laws requiring companies selling into the state to inform consumers of their sales and use tax obligations (if sales tax isn’t collected at the point of sale, use tax is due). And then there’s Amazon, the mother of all online retailers; many states have a unique relationship with Amazon.
States with laws requiring most (but not all) large online retailers to collect sales tax
- Illinois (in dispute)
- New York
- North Carolina
- Rhode Island
- South Dakota
- West Virginia
States with laws requiring companies to inform consumers of sales (use) tax owed
- Colorado (in dispute)
- South Dakota,
States where Amazon collects sales tax:
- New Jersey
- New York
- North Carolina
- North Dakota
- West Virginia
Odd men out
Maine, Minnesota and Missouri all have laws requiring many large online retailers to collect and remit sales tax. Amazon doesn’t collect in those three states because of their affiliate nexus laws, which impose a sales tax obligation on retailers that generate business through in-state affiliates. When Amazon learned of those laws, it severed relationships with affiliates in Missouri, Minnesota and Maine. No affiliates = no nexus. Few retailers can afford to make such a choice.
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