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Your Take: Should Online Purchases Be Taxed?

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TaxRight now, sales tax is only collected on online purchases if the vendor has a presence in your state. In the case of Amazon, sales tax is collected if the purchases are shipped to Kansas, Kentucky, New York, North Dakota, and Washington. In some cases, it’s because Amazon has a warehouse there.

I’ve personally always believed that states should collect sales tax on online purchases for the reasons outlined here. Basically, when you aren’t able to collect sales tax from online sales shipped into your state, everyone who pays sales taxes in your state will pay a little bit more than they otherwise would have.

Another reason why I think sales tax should be collected from online purchases is because it puts local stores at a disadvantage. Maryland sales tax is 6%, which is enough reason for me to buy something online if I can find it a little cheaper and avoid the 6% tax to boot. I understand I benefit from this sales tax “loophole,” but I can also recognize when it’s not in everyone’s best interest to keep it that way.

What do you think?

{ 66 comments, please add your thoughts now! }

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66 Responses to “Your Take: Should Online Purchases Be Taxed?”

  1. govenar says:

    I don’t like the idea of any sales tax at all, online or not. It seems weird to pay tax both when we make money and when we spend it. Though, I might be ok with sales tax if that was the only tax, and income tax was removed.

    Also, I think one of the reasons people shop online is to avoid sales tax. Removing that advantage might hurt a lot of online stores (but I guess it’d help brick & mortar stores, so the overall effect on business might not be that much).

  2. A nice article and a great debate.

    I have a few quick thoughts:

    While I love the fact that internet products are not taxed from a personal standpoint, I definitely see it as a loop hole. If internet shopping had been invented when sales tax was created, it would be applied to internet shopping today. That said, the lack of tax on internet shopping encourages its use and generates much needed sales and revenue for businesses which feeds the economy. Adding tax to internet purchases will add cost to the process which will be passed on to consumers and may stunt sales which would otherwise help the economy. On the other hand, taxes on such sales would generate more income for the US government which could use it to balance the budget or reduce the deficit.

    My gut feeling is that with the economy in poor financial shape, consumer confidence low, and unemployment high, now is not the time to apply taxes to internet sales.

  3. Shckr7 says:

    I think and individual should sum up all of the tax that they pay each year and then pay a tax on that. :)

    Sorry for being silly (at least I hope this is a silly thought…..) there has been a lot of talk about taxes lately…….

    shckr7

  4. Shirley says:

    I buy a lot of things online. I do pay sales tax on most of it, plus I pay shipping charges if I don’t spend a certain amount on each order. That is my choice and for the convenience of not leaving home, I am OK with that.
    I am always surprised when there is no sales tax on an order, but I sure don’t contact them and ask them to charge me more. ;-)

  5. John Campbell says:

    Here’s a thought. Charge sales tax based on the rate charged by the location of the HQ of the company you purchase from. Just like credit card companies go to states that have no usury laws, or very high limits.

    That would be a great incentive for states with low or no sales taxes to bring business into their states.

  6. Matt says:

    I purchase on-line due to the higher sales tax in my community in Ohio. If I can save a few dollars, and also have it delivered right to my house, then I will take that advantage. In my opinion the government has their hands in to many of our pockets. This is one time the public can feel that they have not been taken advantage of by our “great” government. I hope the on-line sales tax never becomes.

  7. Greg Jungman says:

    I too feel it is everyone’s best interest for states to collect taxes on online sales. They need the money, and it is the only fair way to treat their own brick and mortar retailers. The initial arguement that the online retailers needed the help to get going is long past it’s time.

  8. bloodbath says:

    Nobody wants pay MORE taxes but I agree with your reasoning plus city/state services really need the funds today.

    • Josh says:

      And familes don’t need to keep more of thier hard earned money??

      What’s with all the bleeding hearts out there? Federal, State, and Local Government are paying the price for years of mismanagement. Why should we be punished for the others failures? It’s fairly easy to have a realistic budget and make appropriate adjustments to stick to it. Is “don’t spend more than you bring in” so hard to fathom???

      Most people of this site are at least interested in personal finace and are probably better the average american when it comes to debt and savings. If we can do it, so can they!

  9. Don C says:

    NY, like many other states, impose a ‘use’ tax. This means that if you pruchase an item and pay no out of state sales tax, and you ‘use’ it in NY, then you pay the ‘use’ tax, which is essentially the same rate as the sales tax. So to all those people enjoying the so called loophole, welcome to the wonderful world of tax evasion. This is the ‘fraud and abuse’ that politicans always say they’re going to go after.

  10. They are subject to tax, as Don C explains. It’s very hard to collect a use tax, and so as a practical matter it doesn’t get collected.

    Sooner or later, though, states will find a way to initiate federal legislation requiring online retailers to collect and remit state & local taxes. It’s just a matter of time. In a state like mine, where sales taxes amount to almost 10%, online sales put brick-and-mortar retailers at a distinct disadvantage. Eventually they’ll send their lobbyists to Washington.

    For the nonce, though, enjoy it while you can.

  11. I think that online merchants should charge the sales tax rather than have citizens attempt to calculate their own use tax and file it with their taxes. This fall I received a letter from the Board of Equalization in California letting me know that I owed them use tax for previous years. I’ll be sending them my $1k use tax check in a few weeks. It’s been a complete headache calculating the use tax owed on my online purchases over the last few years and could have been avoid had I realized that I needed to do this all along (consumer education?) or had the merchants simply collected it at the time of purchase.

  12. Rich says:

    I think that this question touches on far too many complicated issues for anyone to be able to make a fair gut-based yes or no answer.

    Of course consumers would rather pay no tax on purchases – they don’t want to pay taxes on their income either.

    The true financial problem is that we are separated into factions as a people – the “haves” and the “have nots”. It doesn’t matter how we measure this, nor where we place the dividing line. “Haves” want to keep what they have (including the right to strive for collecting more). “Have nots” want to be supplemented (and to continue to have the right to procure more).

    I think it safe to say that one thing that we can all agree on is that none of us, individually, want to pay any tax. That is to say- if you ask ANYONE “Do you like to pay taxes?” The universal answer will be a resounding “NO”.

    “Have”s avoid as much taxation as possible, thorugh creative bookkeeping, charitable donations, etc. “Havenot”s just have less to work with, and therfore less wiggle room.

    When you start attaching the services that taxes provide to the question– is when people are willing to pay them.

    Taxes are rediculously (and in my opinion needlessly) complicated.

    If we start imposing taxes on online purchases — people will find the ways to procure items in the manner that is least puniative to themselves. As such, yes, taxes are a consideration in some people’s decision to buy in a bricks and mortar store vs. online. This does not however, make strong argument for creating one.

    When someone makes an online or otherwise untaxed purchase, the government doesn’t lose sales taxes. It gains business taxes, more “working people” paying income taxes; some of which may have only replaced jobs lost elsewhere but that is debatable, and increased revenue taxes for the shippers (I am fairly sure that UPS and FedEx pay taxes on their Amazon business income).

    The “use tax” point has already been mentioned in other comments multiple times- and it is still valid. Just because something was untaxed at the time of purchase, doesn’t mean it was tax-free.

    I shop online because it is convenient, and the prices are VERY competitive, especially after various free shipping deals and other various coupons.

    This may mean that internet businesses are pushing small businesses to extinction – but the reason is not sales tax – it is free market economy at its finest. Big business, small business, and government can adapt or get left as roadkill on the highway of progress.

    One might argue that requiring sales tax collection from these online businesses is a governmental adaptation. I agree, but argue that it would be ill advised.

    Businesses then would reorganize into low or no sales tax states / situations, or are required to gear up new tax departments, depending on whether it is buyer or seller based taxation. The need for new tax departments will, in turn, cut revenue and therefore taxable business income – and in some cases drive smaller businesses out of business.

    Bottom line is that taxes are only a way of redistributing the wealth, and everyone does their best to find a way around paying them.

    I know it is a very utopian, and even borderline communist way of thinking, but if we want true fairness in taxation, then responsibility NEEDS to be THE key word.

    Businesses and people are responsible to pay thier taxes. Governmental entities would have to responsibly operate within their means. Raising taxes to cover governmental expenditure shortfalls is NOT responsible (yet somehow we accept it as perfectly normal). It is a rational response (not enough to pay the bills? – make more money!), but rational does not equal responsible.

    Our forefathers saw this place as first a land of opportunity, were then oppressed (and overtaxed) by their long distance government, then revolted and re-established a new government centered around a few idealists making decisions that would effect everyone.

    Politics is a double edged sword, it has both improved our situation overall, and been our biggest opposition to progress (by allowing special interests to rule). This system is great as long as the idealists remain idealists. They must not be encumbered by owing their status (and jobs) to someone else’s (or sometimes worse- their own) interests.

    My proposed solution is a flat tax only on net income (no sales taxes, no use taxes, sin taxes are acceptable- but only in so far as the people agree to them and we call them what they are), for individuals and businesses alike (maybe at the same tax level, maybe different – let the government come to a decision on that). Distributing these taxes to smaller municipalities, then, based on population density, or need – heck.. let the government figure it out.

    The leaders of the American revolution envisioned a government where officials were public servants, and not the people being slaves to the government.

    Taxes, after a long view of the cash flow- really are a government’s way of reclaiming everything. If I make $100 working and pay 35% of that to the government in taxes {step 1}, I have $65 left to spend. My $65 goes through the system being taxed again as part of the income stream of the businesses or persons that I paid it to (assuming another 35% tax rate, the government has already reclaimed 57.75% of the money I “made”{step 2}$42.25 left to fuel the system). By step 3, the gov now owns 72.5% of that money that started with me, leaving 27.4625 dollars in the hands of the people, running through the “system”. Continue stepping down the line, and though the government will never reclaim 100%, it does get to over 95% government ownership by step 7. If you take into account licensing fees, and such, eventually all money is government “owned”.

    Government keeps us from regressing to a “warring tribes” society. Those who are in difficult situations have social assistance programs. We all have law enforcement and judiciation maintaining a sense of order. Progress in various research fields is continued through government programs. The government provides us with a relatively stable environment in which to live — no tiny feat.

    By no means am I saying that there should be no government, but I do believe that it has gotten to the point where the branches of tree of liberty — growing from the trunk of American government — needs a good pruning.

    • Hawk says:

      Boy, did you ever ramble on and on. I read all that you wrote and tried unsuccessfully to follow your logic. Bottom line, it does not boil down to “Haves” and “Have Nots”. You have swallowed the propaganda. Politicians would like it to frame it this way, but it is truly government (wealthy power hungry individuals) against the general populace. We aren’t the enemy, they are. How many “Have Nots” are sitting in Congress, yet they would have you believe that they are the champions of income redistribution to the “Have Nots”. Total nonsense. As long as we argue among ourselves, the politicians are free to do whatever they like. For all the different politicians that have been in office for, say the past 50 years, have things gotten perceptibly better? I think not. We keep trying to correct things at the ballot box because it is the least painful way to change things. I think there will come a time when the electorate get fed up and the tree of liberty will need to be painfully watered by patriots with guns. Why else would politicians try so hard to get guns out of the hands of citizens. Many cars kill Americans, but you don’t hear of politicians attempting to take away your cars. Interesting, cars weren’t even mentioned in any of the Amendments to the Constitution. Therefore, if deaths were a true determinate in whether or not we ban something, cars should go long before guns.

  13. Yana says:

    I enjoy shopping online, especially at Amazon – and until recently, I have never been much of a discretionary shopper. I love not paying sales tax, and it encourages me to make purchases. Maybe it would be good for me if sales tax were charged for online purchases, but it would not be good for the economy. I would reduce my spending disproportionately in rebellion. I am very conscious when making purchases whether a particular purchase is discretionary.

  14. Don C says:

    There are hundreds of state and local sales tax rates. Think of the complance burden you place on an online retailer by making them not only collect, but to file a sales tax return with every taxing jursidiction in the country. It would put a tremendous burden on the retailer. They would have to pay a couple hundred bucks to file the return to remit the $20 of sales tax they collected. Let’s see how long that will last.

    • live green says:

      This is what I was thinking. If all stores have to comply to these regulations even if they don’t have B&M stores, that means it’s harder for smaller online stores who are just trying to make it. They have to know every tax rule for each state and local jurisdiction just to make sure they are in compliance. Another point to note is that not all online stores offer free shipping. Even if they do, this is an extra cost that you do not have to deal with in a B&M store.

  15. Don C says:

    Also, the notion of it not being fair when compared to brick and mortar stores is just not valid. B&M stores can also sell online (just like other online retailers) and are not required to collect sales tax on products shipped to states where they do not have a physical presence (i.e. store, warehouse, etc.). Also, some stores may even ship the product to your out-of-state residence sales tax free if asked.

  16. Ryan says:

    I think that local and federal governments should start talking about which programs they can cut (or make more efficient) instead of coming up with ever more inventive ways of taxing the populace (including Canada, Cindy). I think I remember when Barack said that he would eliminate wasteful spending, but instead pushed for multiple government bureaucracies (czars, health care…) which, by definition, create more waste, but these are just more examples of saying what you want people to hear, and doing what you please.

    • Ryan says:

      I really think what he meant when he said “wasteful spending” was, “what the Republicans want to spend”. :)

      • Jane Doe says:

        Now the republicans want to protect the rich from having to pay more taxes. Republicans just want the middle tax ouched.

  17. Mey says:

    I enjoy no tax as well and do a lot of shopping online. But it is unfair to brick and mortar and small local shops. I think the online store should pay taxes to the states where the buyer resides. There can be some cutoff metrics like if more than x% of customers are from out of state, retailer should file taxes to other state as well. If they want to do business in other states it is fair to expect them to file taxes.

  18. Josh says:

    If all of you want to pay more taxes so much than do it! You can pay more money than you are required when you file your annual tax return. You better believe the IRS will cash your check for the extra amount!

    Stop trying to reach into others pockets! If you feel you can give more then do it. Or better yet give more to the charity of your choice!

  19. jsbrendog says:

    i miss living in NH because of the lack of tax. my jaw dropped the first time I went to buy a 99 cent bag of chips and had my $1.07 ready to go and the cashier says 99 cents and actually gave me back a penny….whoa. i still remember it haha

  20. Scott says:

    I think there should be a tax on anything over a certain amount, say $200 or $500. This would make the enforcement easier and not over-work the system on the retail side.

    Not sure of the right #, but let’s try simplifying things vs. making them cost / execution prohibitive.

  21. Jane Doe says:

    I live in Colorado. I am forced to go through a tax lady because of harassment I have had from the Colorado Department of Treasury in the past. For example we were military had alaska residency yet the state of Colorado thought they were going to get $774 in the year of 2000. A DD form 214 stopped that one. Had another audit in 2006. So you see we use a tax lady to deal with there harassment. Now if our online purchases are sent to the Colorado Department of REvenue along with my name and address oh boy. More harassment from the hungry Colorado Department of Treasury and more money for our tax lady to fill out more forms. Heehaw! I rather online merchants collect the tax themselves or all just have to have things shipped to my friend in New Mexico. I live on a border town anyway.

  22. James says:

    Hers’s a thought, I have no problem paying taxes on things i purchased. I do have a problem with having to keep track of this myself. Why not just set something up on a national level like a 4% tax that would take effect if state sales tax is not required. Merchants only have to pay one souce. Then at the end of the year split it evenly thorughout all the states.

  23. fabclimber says:

    These are all great comments. Some better than others. The lack of agreement, however, does make me wish I was back in the 1960′s again when “free love” was our main concern. I guess that disappeared becasue the gov’t wanted to tax it.

  24. John Q Public says:

    Pennsylvania is ridiculous, they expect you to pay every month by the 20th of the month if you buy anything online that isnt taxed when its taxable. Figuring out what is taxable and what isnt, aint easy. General food and clithing and medicine arent taxable but certain items in those categoies are taxable. If you buy a pumpkin for decoration its taxable, its going to be eaten then its not. What do you do if you put them out for Halloween for a few weeks then you eat it? LOL! Taxable or not? Golf and bowling shoes are taxable, basketball shoes arent. Politicans put so many exceptions and special cases into the sales tax law it takes and accountant to figure it out. Thats why people dont pay it. In order to comply with this people would need to hire their own tax accountants. Then its even more fun for those in Allegheny and Philadelphia counties that pay 1-2% more. To make matters worse they apparently tax shipping too. If they need money it would be simpler to jack up the income tax. Instead all they do is make taxes so complicted practically everyone is breaking the law. What if I buy a TV in 0% Delaware and drive it into PA? Is that taxable? Ive heard they are sending tax bills for people who buy cigarettes in low or no tax states then bring them home to PA. Its insane.


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