One of the reasons many consumers shop online is to avoid sales tax. On popular sites like Amazon.com and Overstock.com, you place items in your digital shopping cart, tack the cost of shipping onto the list price and you’re all set. All of that is set to change, however, with legislation that would allow states to collect sales tax from online purchases made by their residents.
As proposed, the “Marketplace Fairness Act” would imact the 45 states (and the District of Columbia) that already charge sales tax and would require online retailers with sales over $1 million to levy the tax in states where they don’t have brick-and-mortar operations.
The bill already received broad support in an earlier procedural vote in the Senate. Next it will have to be approved by the House of Representatives. If the bill is passed, states stand to collect a total of $12 billion in additional tax revenue each year, according to a an estimate by the University of Tennessee.
Proponents of the legislation argue that it’s not a new tax. In fact, existing law requires a “use tax” on online purchases. Few Americans know that, however, and the law is essentially unenforced.
The Senate is set to vote on the bill Monday. If it passes, the good news is not every consumer will pay more at checkout. It depends in which state you live and the company from which you’re buying. Residents of states with no sales tax, Montana for example, will see no change. And again, if you’re in a state where a retailer has physical stores or warehouses, you’re already being charged a sales tax for purchases made online. But if you live in a state with sales tax, where a retailer doesn’t have a brick-and-mortar operation, you’ll pay tax at the rate determined by your state.
Say, for instance, that you live in Ohio and are shopping online through Amazon.com. Well, the Buckeye state isn’t one of the nine where the retailer has warehouses. In this case, if the bill becomes law, Ohioans will see the state’s 5.5% sales tax on their online purchases. Some items will be tax exempt in all states, however, including: digital goods (movies and mp3s,) prescription medications, grocery products and American flags in some states.
Your can find out more about sales tax in your state through the Federation of Tax Retailers.
Photo Courtesy, On the White Line.