October 07, 2003
March 05, 2003
Tax on the Internet
"... are you going to continue to love purchasing online after you have to pay BOTH sales tax and shipping?"
"I've never been able to figure out just why congress and the president decided to hurt the local & state coffers by allowing goods to be purchased sans local sales taxes over the Internet."
This, in my opinion is one of the big myths of the Internet, and thanks to unclueful media and unscrupulous politicians, it continues to grow.
Sales tax on Internet purchases is and has always been governed as MOTO sales (Mail Order/Telephone Order). The Internet never has been a tax free zone no matter what your local politician wants you to believe.
The rule was quite simple, if the business you are purchasing from does not have a business nexus where the product is shipped, sales tax does not need to be collected. Back in the 1980's, I purchased products from out of state companies and did not pay sales tax. The same holds true for products purchased over the Internet. This was allowed because trying to collect the correct amount of tax based on where the order is shipped would be a nightmare and would put many of these MOTO businesses out of business.
Prior to the Internet, MOTO sales didn't have much of an effect on sales tax revenue received. As the Internet has grown in popularity, states claim they have noticed a decrease in sales tax revenue due to consumers making tax free purchases online. I have not attempted to confirm if that is true or not.
States have attempted to collect sales tax on out of state purchases in various ways. Some states include a line on the state income tax form where the consumer should account for all out of state purchases made during the past year and include the appropriate tax when they submit their income tax. Some states have attempted to collect sales tax from out of state businesses (even before the Internet became a factor) and the courts have always ruled that one state does not have jurisdiction over a business located in another state.
The moratorium of taxes on the Internet is not about "sales tax" but instead about any new taxes applied specifically to the Internet. The states and federal government are trying to come up with a solution that will make collecting sales tax easier for businesses. Personally I suggest a flat rate national sales tax on all purchases which would do away with all local sales taxes and their arcane rules and do away with what is known today as "income tax".