Internet Sales Tax Looks Likely

It looks like Internet shoppers could be slapped with sales taxes when purchasing online. The U.S. Senate is likely to pass the Marketplace Fairness Act, depending on a vote Monday, which requires all retailers on the Internet to assess sales taxes based on the states the items are shipped to, reported CNN. The next step would be passing the Republican-dominated House, after which it would become law. According to White House spokesperson Jay Carney, President Obama is in favor of the bill.

Currently, consumers are mostly able to purchase goods from websites without paying sales tax. The law says that stores must collect sales tax only on items sent to states where the store has a physical presence, say a brick-and-mortar store or a distribution center. States that charge sales tax frequently have differing rates that are dependent on the type of products being purchased. For example, sales tax on alcohol may be higher than dental equipment, or even non-existant, such as with groceries.

To put it simply, the laws are outdated. The Supreme Court last addressed the situation back in 1992, when e-commerce was in its infancy.

In the majority of states that collect sales taxes, the consumers purchasing the products online from a different state must pay a Use Tax. It falls to shoppers to keep track of what they purchase and pay the tax when filing their tax return. However, consumers often ignore this responsibility or are unaware of it, plus it is a law difficult to enforce. As laws already exist mandating Americans pay for unpaid sales tax, individuals who support the bill perceive the tax as already existing and the bill as simply a more efficient system to collect existing taxes.

Supported by giant retailers, Internet behemoth Amazon, small brick-and-mortar businesses, a range of Republicans and Democrats, and President Obama, the bill may level the playing field for digital and physical retailers, especially as businesses expand into having a physical presence in most states, such as Target and Amazon. Proponents argue the tax will topple the unfair advantage that online-only stores currently enjoy.

The charge against the change includes auction site eBay, whose sellers can conduct a great deal of out-of-state sales, and anti-tax advocates who claim the tax will only make online businesses suffer.

The U.S. Department of Commerce reports that 2012 witnessed $225.5 billion in online sales. The National Conference of State Legislators estimate that states could have brought in $23 billion in sales tax revenue off these expenditures.

Consumers who live in states with no sales tax will not be assessed a tax, but companies based in those states will be required to charge sales taxes for the goods shipped to states with sales taxes. The tax will be collected at the same level as the tax paid if the product had been bought in a local store.

The earliest the change could be made would be Oct. 1, 2013. If the bill passes, states will face some requirements before companies are forced to collect state sales tax. Thus far, 22 states have started the process under the Streamlined Sales and Use Tax Agreement, which is helping states to streamline their tax laws and regulations.

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