For decades now local businesses say they have been losing sales to online companies that aren’t required to collect sales tax. Now, the U.S. Senate has passed a bill that would collect tax debt on internet purchases at the time the purchase is made. Not only would this possibly help increase sales for local California businesses, but it may also help governmental agencies collect sales taxes to which they previously had to access.
The so called Marketplace Fairness Act would give states the power to collect sales tax from online retailers. A Supreme Court decision from 1992 ruling that online retailers were only required to collect sales tax in states where they were physically located will be rendered inconsequential by the act. One California retailer said that his business was hurt by the fact that people could come into his store to “try out” the products only to buy them online. Only retailers that are bringing in under $1 million a year will be exempted from the act.
But the act isn’t a law just yet. Republicans in the House of Representatives have indicated that they will oppose the act because it will create a substantial burden on some retailers. Between having to purchase the necessary software and then comply with all of each state’s laws regarding purchases, smaller online retailers would not only lose profits, but transactions would become much more complicated.
Ultimately, for all of the extra work and expense, the business won’t benefit from taxes that are sent to another state. Taxpayers are supposed to account for their online purchase tax debt on their state income taxes. However, most people do not.
Source: Napa Valley Register, “Local stores favor tax on Internet sales,” Howard Yune, May 11, 2013