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Taxes on Internet shopping

Taxes levied on online retail.

Here in the US the Senate just passed the Marketplace Fairness Act, and it is causing a great deal of debate on all sides.

I want you to pay taxes
Pay more taxes on your online goods

In the USA each state can levy its own sales tax. The rate is not equal across the states, for example here in Massachusetts I pay 6.25% sales tax on my new fridge, but if I drive to New Hampshire I do not pay anything. You can check out the differences on this interactive tax map.

The legislation described above aims to make Internet sellers collect the taxes due to the buyer’s state, something they are not currently required to do. At the moment I order my fridge from a New Hampshire based Internet retailer and I don’t pay any tax. In theory I should go and pay the state myself, but with online sales worth billions there is no enforcement and no queues (lines) outside the tax office.

Retail outlets argue that this gives online sellers an unfair advantage, but they in turn argue that the collecting and payment of state taxes under the new proposed regime would be expensive and extremely complicated. If they sell me the fridge here it costs a certain amount, they have to collect the tax and pay it to Massachusetts, but my friend in Florida pays a different amount and the tax is paid to the state there. Now this might not be too complicated a system for Amazon to manage, but a small Internet based retailer might not have the technical expertise or personnel to carry it out.

The proposed bill does exclude traders who sell under a million dollars of goods, but in today’s world that could still be a very small organization.

The technical difficulties of collecting the taxes through any other means seem insurmountable though, and the problem is very much related to the idea that borders can be controlled. States have different laws about selling many things, but if these things can be bought on the Internet and shipped to an individual house I cannot see how these rules can be adequately enforced. Is it a form of smuggling to buy something that you cannot get in your own state?

The result of the bill (if it passes although it does have bi-partisan support) will be that local sales tax will be levied at source and so the fridge will cost more. Maybe this is just and fair, maybe it will choke some smaller businesses, who knows?

What do you think?

0 replies on “Taxes on Internet shopping”

Did you realise what you were getting yourself into just for a new fridge!

I can’t believe how radically different taxes can be from state to state. If you lived in Southern Texas, it may be a way to go to avoid taxes on purchases there, but up in Massachusetts you have 5 (is it 5?) neighbouring states you could easily buy from.

What would happen if I sold you the fridge? Would I have to ensure Massachusetts tax rates were charged, or would there be a different tax system altogether?

That could be really tricky to implement, as online retailers would need to show prices excluding VAT and then add that on once you tell them your address.

Small online retailers and ebay are complaining that the proposals will make life very difficult for them. There must be ways of adding the tax on an individual basis as i am sure there are ways to stop people selling things in states where they are prohibited. Some sites say that they “ship to all states” and i think this means that they will ship things even if they are prohibited, but I don’t know how they get around the law.
If you sold me the fridge it would be an import so taxed as that, but within the USA the different states do not enforce the collection of import tax, although this is in effect what this law is aiming to do.

It sounds like it will be quite unworkable. Australia like the UK operates a gst/vat system which is national. It makes it a lot easier to administer however there are still quite a few retailers who are basing their operations outside of the country and getting around the gst.

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