How To Capitalize On The Confusion Of Online Sales Tax

Posted on Jan 15 2014 - 10:22am by Marianne Ross

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As another holiday season reaches its peak, so too do visits to the mall and people jumping online to snap up last minute deals. A growing number of us now favor shopping online for its many conveniences and benefits. One of its main advantages is that we do not have to sit in the car, drive all the way to the mall or supermarket, walk around and spend time browsing for the things we need. No, instead we can do all that from the warm and comfort of home, with a few clicks on the mouse that sends someone else to locate and package our goods for us. Another reason some of us may be drawn to buying online is the possibility of avoiding paying sales tax. We all know you can discover some great deals online, but can you really avoid paying sales tax? Why is it all so confusing in the first place?

It’s a matter of states

When it comes to online sales tax, it’s all a question of what state you are in, and what state the retailer you are buying from is based. If you buy from a store whose physical presence is not in the state you reside in, then there is a chance you may avoid having to pay the sales tax you might otherwise have had to if that store was in your local shopping mall. While this might benefit you, the buyer, it’s not such good news for your state, who relied on you buying products it can charge a sales tax on, in order to divert that money to some of the basic services you receive as a resident in that state. Every state has different rules when it comes to online sales tax – which is what makes it all so confusing for you, the buyer.

Clearly, it is in the interest of ever state to try to tax all online stores. This way, each state is able to collect revenue from all purchases and continue to fund the initiatives it invests in. By law, that can be a difficult thing to achieve. Unless a seller is physically present in the state of the online shopper, then that state cannot require that it pay taxes. However, some states  have expanded the legal definition of “presence” to enforce retailers to demand a sale tax even if there is no property owned by that retailer within the state. Laws such as these redefine several online retailers as in-state and thus, taxable.

Understandably, not all online stores have accepted these changes, which have resulted in several lawsuits you may or may not have read about in the news. This is what is making online sales tax so confusing, as state and company argue over what is in-state – and taxable – and what is not. The result of some of these lawsuits has meant that while some Americans will be forced to pay an online tax in one state, others in another state will not. The best thing to do if you are not sure about whether or not you will have to pay sales tax is to investigate which companies are not required to pay a sale tax in your state. To make it easier, you can always consult a tax consultant, who can help you to capitalize your online shopping by familiarizing you with the particularities of the laws applicable to you in your state.

A difficult thing to avoid

Don’t be too optimistic however. While some court cases have favoured retails, other have not, and it looks as though there is still a long road ahead towards making online sales tax clear for all concerned. There is always the chance that you will find yourself in a state that does have to pay tax for say, a book on Amazon, where others in neighbouring states do not. And even if you are fortunate enough not to have to pay the tax on the book, you may still have to declare the unpaid tax in your tax returns at the end of the year, in order to avoid tax fraud. If you don’t pay online tax for a purchase, you run the risk of having been mislead by an online retailer who failed to collect that sales tax – which could put you on the wrong side of tax law. Keeping yourself as informed as possible is the best way to go when it comes to making the most of the confusion of online sales tax, but tread carefully and make sure to keep updated on any changes as they may happen.

About the Author
Marianne Ross

Marianne Ross is a freelance writer with an interest in economics and healthy living. You can contact her with any questions or comments at mariannesross@gmail.com