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Veterans to shop tax free online starting Veterans Day

  • Jul 31, 2017 | Gail Cole

 Active duty soldiers can already shop tax-free at the Exchange. Soon that privilege will be extended to honorably discharged veterans' online purchases.

Active members of the military are often separated from their families and put in harm’s way. One small gesture of gratitude for their sacrifices is offered at the exchanges and commissaries owned and operated by the government. These on-base department and grocery stores, which are only open to holders of a military ID card, sell items “at cost” — and they don’t charge state or local sales tax.

Now the perk of tax-free shopping is being extended to honorably discharged veterans of all branches of service. Starting November 11, 2017 (Veterans Day), they’ll be able to purchase taxable goods tax-free from the online Army & Air Force Exchange. Most will still not be able to shop at physical stores on base (only certain veterans enjoy that privilege).

This is part of a larger strategic plan to boost Exchange sales, which have dropped from $10.3 billion in 2011 to $8.3 billion in 2016. One reason for the decline is the fact that there are now fewer active-duty Army and Air Force soldiers. Opening up the online Exchange to honorably discharged veterans could bring in up to $200 million annually by 2020.

Another part of the strategy (this is the military, after all) to boost Exchange sales is to match the convenience of Amazon. Like so many consumers, military shoppers are succumbing to the ease and affordability of Amazon and other etailers. The more they shop at Amazon, the less they buy from the Exchange.

Beat Amazon at their game

Exchange CEO Tom Shull says he intends to leverage the Exchange’s many physical stores to expand and facilitate deliveries of online orders and “beat Amazon at their game.” According to Shull, the Exchange is “leaning toward not just ship-from-store but pick-up-from store and eventually deliver-from-store.”

Currently, 26 on-base Exchange stores have the ability to ship orders to consumers, and that number will more than double by the end of the year. Deliveries typically reach their destination within two days now, but that’s not fast enough for Shull. He says the Exchange is on track to make deliveries within two hours of an order by 2020.

What about use tax?

Opening the online Exchange to veterans may also open a can of worms with tax authorities. In all states with sales tax, consumers are required to pay use tax on taxable transactions when retailers don’t collect sales tax at the point of sale. It’s as yet unclear whether states will expect veterans to remit use tax on their Exchange transactions. If they do, this could certainly undermine Shull’s plan.

In theory, use tax could even apply to active-duty military shopping online, especially for those who don’t live on base. It’s one thing to not collect tax on a military base. It may be quite another to not collect tax off base. Expanding tax-free online shopping could raise many interesting questions.

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Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.