|Cyber Monday 2012 - Projected to|
Surpass $1.5 Billion in Sales
Why? Well, if you’re a frequent visitor to The State and Local Tax “Buzz” or follow my contributions to the SalesTaxSupport.com blog, you're well aware that I follow (closely follow) and report on (and speak on and tweet about) “Internet Sales Taxes”.
And, just as I did last year, I knew I’d be writing a "Cyber Monday – Taxes" post and wanted to see what message the media was sending this year. Would the media (once again) be sending the message that Cyber Monday shopping is “tax-free”?
Although a few of this year’s articles have correctly reported the tax reality about online shopping (more on that in a bit), there certainly been no shortage of articles whose headlines promote the supposed “tax free benefit of online shopping" message. (See, This Cyber Monday Could Be Last Before Sales Taxes Hit, Washington Times, 11/25/12; Retailers Pressure Congress to Tax Next 'Cyber Monday', The Hill’s Technology Blog, 11/23/12; and, Will This Be Your Last Tax-Free Cyber Monday?, The Natural Truth – Boston Talks blog, 11/25/12)
But I've got news for you Cyber shoppers - for the vast majority of you, those Cyber purchases you make today are NOT tax free!
Smashing the Myth - Purchases Made Over the Internet Are NOT Tax Free
Perhaps one of the biggest myths about shopping online is that purchases made over the Internet are "tax free". Here's a statement we've all heard (or maybe even said), "I'll just buy it over the Internet and save on sales tax".
Here's the reality - if you've purchased merchandise online which is taxable in your state and your Internet retailer didn't charge you sales tax, it's very likely that you still still owe tax to your state. That’s right, unless you're a resident of one of the five states that do not impose a state sales tax – Alaska, Delaware, Montana, New Hampshire, and Oregon - you, the purchaser, the ultimate consumer is responsible for reporting and paying the "use tax".
Wait A Minute, I'm Supposed to Pay a "Use Tax”? That’s News to Me!
I've often heard or read comments which lead me to believe that some folks quite honestly don't realize that their state requires them to voluntarily pay a use tax on their "tax-free" purchases. These comments take the flavor of "I'm supposed to pay a use tax? That's news to me!", or "I don't know how (or where or when) to report my use tax", or "What's the difference between a sales tax and a use tax anyway?"
Every state that imposes a sales tax has an equivalent "use tax". When tax is charged on the sales transaction, it's referred to as a sales tax. But when sales tax isn't charged at the time of sale and the purchase isn’t otherwise exempt, the tax that is owed is referred to as a use tax. In general, a use tax is defined as "a tax on the use or consumption of tangible personal property in a state". The same state tax rate applies whether it's charged as sales tax or paid as use tax. (However, a customer’s tax could be based on a different total rate in states which impose both a state rate and local jurisdiction rates, e.g., county, city, school district, etc.) Also, because a state decides what's taxable and what isn't, in general an item will be taxable (or exempt) regardless of whether it's purchased at the store down the road or on-line.
How do you report and pay your personal use tax? If you're a resident of a state that imposes a personal income tax (all but about seven states do), your use tax is reported and paid together with your personal income tax. Of the states with a personal income tax, at least half include a line on their tax return for reporting use tax. Some states also have use tax tables in their instructions to help residents estimate their annual use tax bill. Heck, even states without a personal income tax - like Texas and Florida – have a separate form for reporting use tax.
Alright, So Now I Know About "Use Tax", But I Also Heard There’s a Big Push to Pass Federal Legislation That Will Make All Internet Purchases Taxable.
Once again, Internet purchases are already taxable, but because the use tax is a voluntary tax - one that many folks, even those who are aware of it, don't pay – these purchases generally escape taxation.
Now, before I continue, you might be wondering why many online retailers don’t charge sales tax already. It's not because of some "special subsidy" or "preferential treatment" for Internet sellers (as some media reports would lead you to believe). It's because an Internet retailer must have a connection or tie – a “nexus” to a state in order for the state to be able to require that retailer to collect and remit its sales tax.
Often you’ll read that nexus means having a physical presence in a state, but states are redefining what a “physical presence” means and there are many "less than obvious" activities that could create a physical presence. At the end of the day, let's just say that an Internet retailer’s activities in a state must have exceeded what that particular state defines as establishing nexus for sales tax collection purposes. (For more on nexus, see my prior “Buzz” post, “State Tax Nexus - Triggered By So Much Less Than an Obvious Physical Presence”. Also, here’s your author speaking on nexus in this YouTube video.)
So what IS the status of the Federal proposals? As you’re likely aware, three “internet sales tax” proposals have been introduced during the current 112th Congressional session – the Main Street Fairness Act (S. 1452/H.R. 2701), the Marketplace Equity Act (H.R. 3179) and the Marketplace Fairness Act (S. 1832). If it seems like you’ve been hearing about these proposals for a long time – you have! These proposals were all introduced back in 2011. Although all three of the proposals share the same goal – to require retailers to collect sales tax even in states in which a retailer lacks nexus – only two of the proposals, the Marketplace Equity Act and the Marketplace Fairness Act are possible contenders for passing. With only a few weeks left before the 112th Congressional session ends, the lobbying efforts by organizations advocating for, and against, these proposals are going full-steam. It's also been suggested that one of these proposals could be tacked on to a “must pass” piece of legislation on fiscal cliff issues. (For more on the Federal proposals, see my listing of blog articles below.) As I've said in the past, "it's not over till the fat lady sings" and she ain't sung yet - so anything is possible.
It’s Cyber Monday 2012 – and it's projected to be a BIG online shopping day! According to comScore, Inc., a leading Internet technology company that measures and analyzes what people do as they navigate the digital world, Cyber Monday sales, which approximated $1.25 billion in 2011, are projected to surpass $1.5 billion today! That means that even if my post reaches millions today (all kidding aside, I'd be thrilled with a few hundred views) – these sales will go largely “untaxed.” So if you've got some shopping to do today - go ahead and join in on the Cyber shopping fun. (Just don’t forget that use tax!)
Want to revisit the provisions in the Marketplace Equity Act and the Marketplace Fairness Act? See my prior posts here on The State and Local Tax "Buzz" and on SalesTaxSupport.com.
For more on S. 1832, the Marketplace Fairness Act, see the following posts:
- Congress Introduces a Hybrid Solution: The Marketplace Fairness Act, The State and Local Tax “Buzz”, 11/28/11
- From Main Street to Marketplace Fairness Acts– Sales Tax 2011, SalesTaxSupport, 11/28/11
For more on H.R. 3179, the Marketplace Equity Act, see the following posts:
- The Marketplace Equity Act - Congress Introduces a Second Remote Seller Collection Bill, The State and Local Tax “Buzz”, 10/31/ 11
- The Marketplace Equity Act: The New Competition on the Block, SalesTaxSupport, 10/25/11
And for even more on the Federal Proposals, see:
- Internet Retailers Find Expanding Sales Tax Laws and Pending Federal Legislation Confusing and Concerning, The State and Local Tax “Buzz”, 10/31/12
- Top Internet Tax Questions from Retailers Reveal Complexity of Issue, Sales Tax Support, 10/24/12
- E-Commerce and Sales Tax Legislation, Avalara Sales Tax Management Thought Leadership Series, YouTube Video, 9/29/12
- Marketplace Equity vs. Marketplace Fairness. Is Either the ‘Right’ Solution?, SalesTaxSupport, 8/13/12
- Federal Internet Tax Gets Its Day in Committee, The State and Local Tax “Buzz”, 8/1/12
- Internet Sales Tax Legislation: What It Means to Small-Medium E-Commerce (A Plain English Guide), Whitepaper, STS Publishing, LLC, May 2012 (Note, if you're reading this on a mobile device, this whitepaper opens up as a PDF)
- Sales Tax Act – Main Street or Marketplace. Is SST Issue Key?, SalesTaxSupport, 12/22/11