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What if sales tax were collected on online purchases?

Posted By Jim On 12/16/2010 @ 7:04 am In Personal Finance | 59 Comments

In our next edition of our nascent What If? [3] series, we take a look at a target of the fiscal hounds. Since the dawn of time, sales tax was only collected on internet sales if the vendor had a physical presence in the state of the buyer. As many state governments ponder how they will get their budget back into the black, after plummeting home values and real estate tax revenues, collecting sales tax on online purchases seems to be a popular idea.

What would happen if sales tax were collected on online sales?

For Vendors

They hate it for logistical reasons because having to collect fifty different sales taxes (technically fewer than that because some states don’t collect sales tax) and filing them with the state would crush many small businesses. There would be companies out there willing to fill the void, providing software to track those purchases and make those filings, but it would represent a big headache for stores, especially the small mom and pop varieties.

For Governments

More money. Consumers spent a billion dollars [4] on Cyber Monday. One percent of a billion is ten million. While Cyber Monday is the biggest online shopping day of the year [5], that’s enough of a taste to get lawmakers excited.

For Consumers

For the consumer, chances are nothing would change except states would have an influx of new revenue. Whenever I buy something online, it’s usually because I can get a wider selection, more access to research, and a better price. The fact that sales tax isn’t collected is just icing on the cake, it’s the other things that make the online experience so much better.

If you wanted to score a great Black Friday deal, you’d have to get up early, drive to the store, wait in line, and then fight other customers to get your deal. You have one shot at it too, because you can’t be at multiple store openings at once, and everyone else is miserable and cranky because it’s freezing and it’s early.

If you wanted to score a great Cyber Monday deal, you’d have to get up early, sit at your computer in your warm house, and roll the dice and hope the computer gods smile favorably on you. If things don’t work out, you try another site. Or another. You might be cranky because you didn’t get the deal you wanted but you’re minutes away from crawling into your still warm covers and fall back to sleep.

Sales tax isn’t the reason why online shopping is so popular, it’s all the other reasons. Introducing sales tax to online purchases would shift some of the purchases offline but not enough to hurt online sales.


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[3] What If?: http://www.bargaineering.com/articles/tag/what-if

[4] spent a billion dollars: http://www.comscore.com/Press_Events/Press_Releases/2010/12/Billion_Dollar_Bonanza_Cyber_Monday_Surpasses_1_Billion_in_U.S._Spending

[5] biggest online shopping day of the year: http://www.oregonlive.com/business/index.ssf/2010/12/cyber_monday_the_biggest_onlin.html

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