Tax Lawyer's Blog

In Losing Sales Taxes Bob Williams of Tax Vox blog writes:

Under current law, on-line retailers—as well as other remote sellers such as catalog stores—need to collect state sales tax from buyers only when the retailer has physical presence in the state (“substantial nexus” in legal terms). That’s because a 1992 U.S. Supreme Court case, Quill Corp. v. North Dakota, found that sales tax on remote sales violated the interstate commerce clause of the Constitution and unfairly burdened retailers.

In fact, the burden falls on states that lose out on billions of dollars of sales tax revenue every year. On-line sales have grown rapidly in large part because retailers charge no sales tax on buyers outside the retailer’s home state and sellers advertise that fact. Other factors may also help lower on-line prices but sales tax avoidance likely provides the biggest kick.

Williams said that although most states have a parallel “use” tax that taxes residents on the use of items they purchase free of sales tax, it has been difficult to enforce and most taxpayers don’t pay it:

Unbeknownst to most shoppers, however, most states require their residents to pay “use tax” on taxable items they purchase without paying sales tax. Virginia, for example, includes an entry on its income tax return to encourage tax filers to pay their use tax. Not many do. Some years ago, the Virginia Department of Taxation told me that only about one in a thousand returns included use tax.

Related Posts:

• States Losing Money, Study Finds
• Supreme Court Refuses to Hear “Physical Presence Test” Case: Harbinger of Things to Come?
• E-Commerce Sales Tax Unworkable, Critics Charge
• 6 Things You Can do to Avoid Going to Jail for Failure to Remit Sales Tax
• State Governments are on the Prowl for New Sources of Revenue: Watch Out for New Internet Sales Tax Law

Bookmark & Share: