The Internet Sales Tax Issue

There is a golden egg floating out there for the tax man – the Internet. The issue of how to deal with the Internet sales tax has been an issue of great debate, so let’s take a closer look.

The internet sales tax issue is primarily a state issue. Most states charge a sales tax on everything sold in the state. When you head down to the dealer and buy a car, you pay sales tax. When you go to the store to buy groceries, you pay sales tax. When you buy a book at a bookstore in a mall, you pay sales tax. This is a huge revenue source for most states.

Now consider the internet. It is a digital environment. This means each “store” on the web really doesn’t exist anywhere. At best, you could say the individual person or company that owns the site exists in some physical location. For instance, the company that owns this site is in San Diego, California.

This location issue is a huge problem when it comes to sales tax collection. Why? A state can only collect taxes on sales that occur in a state. Moreover, a state can only force a company to collect sales tax if the company has a physical presence in the state. If you buy a book at a bookstore in a mall, sales tax is collected. If you buy it at Amazon.com online, it is not.

As you might imagine, this drives the politicians out of their minds. The first thing they did to deal with it was to pass laws stating that any company that sold products in the state had to collect and pay sales taxes. The online companies objected to this because it meant that they would literally have to collect and pay sales tax in each of the 50 states. That meant a huge administrative burden ranging from keeping the money straight to figuring out the sales tax returns for each state.

As you might imagine, this dispute ended up in court. Eventually, it made its way to the highest court in the land – the Supreme Court. After hearing arguments, the Supreme Court agreed with the online retailers and barred all of the state collection efforts in two decisions - Bellas Hess v. Illionis and Quill Corp. v. North Dakota. At the same time, however, the Court indicated the states could collect sales tax if they could agree to a unified method that would not be burdensome to online businesses.

The states have yet to agree on any uniform collection system. With money really tight, we are seeing some progress. The states are now thrashing around with something called the “Streamlined Sales Tax Project”. It is an effort to create a unified, simple method for online businesses to collect and pay sales taxes. As of the writing of this article, 20 plus states have joined on and some retailers are voluntarily doing so as well.

Ultimately, the sales tax issue is one that is going to be hotly debated over the next few years. It is also going to be an issue that ends up in court repeatedly. Make sure to bookmark our “internet tax” section to see the latest developments. 

source : http://www.businesstaxrecovery.com