In our next edition of our nascent What If? 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?

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Right 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?

This page covers the 2010 Sales Tax Holiday Schedule.

Sales tax holidays have gained in popularity in recent years, in part because of the economy but mostly because everyone wants to get a good deal, and more and more states are starting to get in the fun. It will be interesting to see what states do this year as many are seeing budget shortfalls as a result of sagging home prices. It’s a trade-off between boosting the economy and surrendering tax revenue (and politicians voting against very popular sales tax holidays!), it’ll be interesting to see as we start to near the usual “full swing” period of sales tax holidays.

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This page covers the 2009 Sales Tax Holiday Schedule. Here is the list of the 2010 Sales Tax Holidays.

With the economy in a funk and consumers looking to save as much as they can, one of the best ways to shave several percentage points off your purchase is to wait until a sales tax holiday! States started having sales tax holidays several years ago and discovered that a lot of people were taking advantage of them. It’s the perfect marriage of consumer saving money and their representatives earning brownie points for giving them that opportunity. Despite the numerous reports of state budget shortfalls, many of these sales tax holidays are still in effect. I don’t expect to see many state legislators introducing bills canceling “long” standing sales tax holidays!

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This page covers the 2008 Sales Tax Holiday Schedule. Here is the latest 2010 Sales Tax Holiday Schedule.

Since many states are having their first tax-free period (for hurricane preparedness) this weekend, I thought it would be helpful if someone did a recap of all the tax sales across the nation (I’m unaware of a similar list for 2008 existing anywhere), so I did searches of all the states and collected the information on any sales tax holidays they are having. Many states have scaled back the tax-free program because of projected tax revenue shortfalls (Florida canceled its spring tax sale for hurricane preparedness supplies and shortened its typically ten day school supply tax-free period to seven days) but many still have some sort of program in place.

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In the discussions on Huckabee’s support of the Fair Tax, the idea of a value added tax (VAT), a type of consumption tax, was raised. here’s a discussion on how the VAT exists in the UK. It’s not to say that the UK’s version of a VAT is how every VAT is, but seeing as how our cultures are basically siblings, it’s not a bad thing to understand.

What is VAT?

In the UK, as in almost all of rest of the European Union, we have both an income tax, and a consumption tax – in the form of VAT. Like most taxes over in the UK, they are levied by central government and are used to fund both central and local government functions and services.

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We learned last year that taxpayers who itemize have the option of claiming their state and local income taxes or their state and local sales taxes as an itemized deduction on their 2005 returns and that this year will be the last year you will have that option (on your 2006 returns for your 2005 Tax Year).

The rule is that you can deduct actual state and local sales taxes (actual means you must keep receipts) or you can deduct values taken from the sales tax tables. By using the optional general sales tax tables, you don’t need to keep receipts. When you use the optional tables, you can add the tax on big purchases such as a car, plane, boat, mobile home, or home renovation to the total. So if you read off the table that you are eligible to claim a $779 deduction for sales tax and you just bought a $10,000 car in Maryland, you can add $500 (MD Tax is 5.0%) to the optional table value for a total deduction of $1,279.

Where are the sales tax tables? Where is Publication 600?
The tax tables that were available as Publication 600 last year were rolled into the 2005 Instructions for Schedules A & B (Form 1040) on pages A-10 to A-11.

For more information, please read the press release from the IRS.

This article has been made somewhat obsolete for 2006 (2005 tax year). The rules are the same but the documents you reference have changed. See the note at the end of the article.

Welcome to the second article in a series I call Tax Relief 101 designed to help you save some cash from the tax man. You can see the whole collection under the category of Tax Relief 101.

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