Posted in: Compliance, e-commerce, Special Report
Online shopping grows in popularity every year and Web shoppers now predict they’ll be making 53% of all their retail purchases online in 2012, says a survey by discount website PriceGrabber.com. One of the greatest attractions for many shoppers is that the price for goods purchased there often doesn’t include the taxes consumers are charged at the brick-and-mortar stores in nearly all states. But it seems the days of tax-free Internet retailing may soon end, if any of the three bills making their way through Congress pass.
Federal legislation aimed at leveling the playing field between online retailers and brick-and-mortar stores has been proposed by bi-partisan legislative groups in response to the flurry of state laws being crafted to resolve the issue.
State governments, starved for revenue in the recession, are looking for ways to collect sales tax in the 45 states that currently charge one.
Conventional business owners are pushing these efforts as they see their sales dwindle and their customers desert them for online prices that often don’t include a hefty tax.
How have online businesses avoided these sales taxes? A 20-year-old Supreme Court decision – Quill Corp. v. North Dakota – determined that businesses aren’t responsible for collecting sales tax from customers unless they have a physical presence, or nexus, in the places their customers live or to which the companies ship purchases.
It’s how the states define nexus that’s often bewildering. And for retailers, keeping track of the variety of definitions could be a complicated job.
Part of the reasoning was that collecting and paying those taxes would be too big a burden on the small businesses that operate on the web.
Now, nobody these days would call Amazon a small business, but many of the merchants they link customers to are. And the idea that they’d have to collect and pay 45 different states the 45 different taxes they assess could be something of a chore.
The patchwork of state laws being enacted may ultimately be more trouble for online retailers than an over-arching federal law that regulates how state taxes are paid and collected.
But as online retailing continues to pick up speed, you can bet that traditional retailers won’t give up their fight to get states to collect the taxes that challenge their businesses.
As it is, the brick-and-mortar stores are struggling to stay alive as many shoppers use them for browsing and in-person comparison shopping – by using handheld mobile devices to scan UPC codes and then doing a web search for the best pricing. Unless sales tax laws are standardized across all states, the demise of these stores could arrive a lot faster than anyone ever anticipated.
For an in-depth analysis of the new laws and the sales tax landscape, check out this CFO analysis.
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