States scramble to get a cut of online shopping taxes
Preliminary data show that internet sales are keeping pace with local brick-and-mortar sales so far this year. With this much revenue on the line, states are scrambling to inform the cyber-consumer about taxes due on internet purchases.
To date compliance has been, to put it mildly, not good.
Whether or not states have special internet sales legislation on the books, most states require the payment of use tax on any untaxed purchase, including those made over the internet or from out-of-state vendors.
Use tax is due on any taxable tangible product purchased by non-tax-exempt entities when no sales tax was collected at the time of purchase, regardless of where the item was purchased. This includes items purchased over the internet or from out-of-state sources including Amazon, eBay and others.
States have identified unpaid use tax as a significant loss of revenue during a time when budgets are stretched to the breaking limit. An estimate by the Streamlined Sales And Use Tax group claim $20 billion a year is being lost.
Identifying the problem and figuring out what to do about are two different things. Most states have been at a loss as to a practical remedy. Some have included a self-reporting section on the state income tax return. Other states rely on press releases, news coverage and guilt. None of these methods have so far show much effect on compliance with some sources saying as little as 20% of these taxes are collected.
Federal legislation is being closely examined by both the senate and house to try to come up with a “fair” solution to this uncollected tax problem.
The Main Street Fairness Act, which has failed in previous years, was introduced this year by Sen. Richard Durbin (D-IL) and is currently being reviewed by the Senate Committee on Finance. The bill proposes to promote the simplification, administration and collection of sales and use taxes. If made law, a minimum revenue threshold would be determined and online retailers above that line would be forced to collect sales taxes on all transactions, even those made to out-of-state purchasers. Versions of the bill are before both the senate and house and are being actively promoted by states signed on to the Streamlined Sales and Use Tax Agreement, several retailers associations, and even Amazon.com
Unfortunately, like most of the issues involved the fiscal cliff miasma, this one seems to have little chance of resolution before year’s end. You can track the bill’s progress at http://www.govtrack.us/congress/bills/112/s1452.