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Should Online Merchants Have to Pay Sales Taxes?

It’s pretty apparently that both our federal and state governments need more money, and one hot issue that I’ve been hearing a lot about lately is the discussion on whether to allow states to tax internet purchases and collect some much needed money.

Why is this such a big deal? Estimates put the amount of sales tax that goes uncollected from online purchases will total $10 billion this year.  Another estimate puts the figure as high as $24 billion for 2012. At an average of several hundred million dollars per year for each state, there’s good reason for states to be interested in this huge amount of money they could get their hands on.

But is it something they deserve or just another way to tax businesses that will hurt small businesses and give that money to our state governments. Is it just a fancy way to raise taxes without saying so?

According to a 1992 Supreme Court decision, a merchant is not required to collect sales tax unless the merchant has a physical presence in that state. In response, several states, including California, have started to make it mandatory for online retailers to collect sales tax. As a result, Amazon has closed its distribution centers in those states and no longer has a physical presence.

One of the reasons I shop at Amazon and other online retailers is for the great prices. Why are they cheaper? One reason is that they don’t have to pay all the taxes! Take away a couple percentage points and they’re really selling the same goods for the same price. You’re saving on sales tax, and the retailers are benefiting with more business!

Readers, what do you think? Should online retailers have to pay sales tax (and therefore charge you more money for products)?



  1. How about thinking of it from the point of view of the retailers that must collect a sales tax? They’ve incurred the expenses of setting up a store, hiring employees, getting product, and offering items for sale. Why should they be punished for this by losing sales? In the end, what happens? The store closes it’s doors. The investment they made goes down the drain. Employees lose their job and their spending power to the local economy. Less competition and suddenly prices start to creep up.

    Yes, we all benefit from no tax items in the short term, but in the long term, I question whether we are really helping or hurting ourselves.

  2. I thought it also had to do with where the buyer lives. So, for instance, an online business based in California could only charge tax to someone buying a project if the buyer was ALSO based in California. If the buyer was in, say, Arkansas, then they would be charged Arkansas tax? And if they’re in a different country, they pay no tax?

    It’s confusing! I don’t think online businesses should be exempt, but man, I’m getting a headache just trying to figure it out!

    • @Melissa, Currently, that’s true. See RT’s comment below, it sounds like it doesn’t matter where the business is based, some states want a cut if their residents are buying goods online.

  3. Its not so much that the tax is the primary difference maker in the price. There are two things in the operational costs that make the item cheaper. the first being, is not having as high of an accounting bill, since the tax does not need to be collected and redistributed to the state. The other operational cost being that E-Stores have less overhead…since they are mainly operating out of a warehouse.

    But regarding the collection of taxes, when there is no physical presence. The reason the supreme court has ruled this way, is because it would be a burden for a business to collect and redistribute taxes to 50+ separate jurisdictions.

    • @RT, I agree, it would put a crazy burden on small businesses, and that’s completely unrealistic. Still, very hard to ignore when that much money is passing by and you’re getting none of it.

  4. First, God bless America. However, collecting and remitting sales tax in the United States is a real pain in the ___. I certainly wouldn’t volunteer to do it.

    There are a few states that don’t collect sales tax. Then, there are the states that collect sales tax. Then, there are the cities that collect sales tax separately from the state. And then there are the counties that collect sales tax separately from the state and the city. If only there were 50 entities to report to!

    The states need to take up their revenue problems with their citizens. You’re not relieved from paying sales tax just because a merchant doesn’t collect it. If you want to help your state out, pay the use tax that’s due.

    I hope Amazon wins and the states lose.

    • @Shawanda, Use taxes are an interesting subject, I’m sure most people don’t know about it. Who is going to report something like that??

      It’s clear to me that the tax laws need to be simplified in some way. It’s too much!

  5. One of the attractions to online shopping is the immediate savings in not paying sales tax. Add in free shipping and they can compete with brick and mortar stores. Should they pay sales tax? Yes, although I would not like it.

    • @krantcents, isn’t the reason they have to pay sales tax that if you want to run a business in their state, you need to pay their taxes. But are they really running a business in their state?

      I wouldn’t like it either ;)

    • @Kevin @, Would you fight against it in a vote? Though in that case, it would likely be either this tax or some other tax. If they need the money, they’ll find it somehow.

  6. Firstly, thanks for posting this excellent discussion topic. Secondly, good for Amazon! I agree that one of the biggest attractions to Amazon and other online retailers is the lower prices. If smaller online businesses were forced to pay the same taxes as brick and mortar businesses, many of them would cease to exist. Not to mention, as RT points out, the logistics would be a nightmare.

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