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Tax Free Shopping? Think Again!
What's New in Technology
April, 2001
Tax Free Shopping? Think Again!
You come home after a hard dayâs work and your son, wanting the latest Harry Potter book, bombards you with requests. So, being the cost conscious parent you are, you jump on Amazon.com and buy the book at a great price. Better yet, you donât even have to pay sales tax. Thatâs the real reason you go to Amazon.com anyway, isnât it â to avoid sales tax?
Thatâs not entirely a fair question and we know it. The fact is you get pretty good deals through mail order and Internet stores sometimes. The freedom from some sales tax is just a perk; a perk that will soon go away if state legislatures have their way.
At last count, there were actions pending in twenty-three states. Three of those states have enacted the Uniform Sales and Use Tax Administration Act (the âActâ) and only one has failed to pass it. Nineteen states still have the Act under consideration.
The Act
So what is the Act and why should we care? After all, itâs impossible to get two states, much less all fifty, to agree on anything, isnât it? They certainly wonât agree on sales tax issues.
To answer the second question, all you have to do is think of how much sales tax revenue states are losing. According to the National Conference of State Legislature, projected Internet sales will be $150 billion by 2003. Using a conservative sales tax rate of 4%, taking this level of sales out of the sales tax picture would cost state and local governments in the area of $6 billion â probably more.
Since the majority of state and local governments collect over 20% of their revenue from sales taxes, weâre talking about a significant impact on funding for state services. With this kind of money at stake, states will eventually come to some agreement on how to tax those sales.
The Act itself is a model law for states to follow in authorizing their tax collection agencies to enter into the Streamlined Sales And Use Tax Agreement (the âAgreementâ). The Agreement establishes the ground rules for a stateâs participation with other states in this simplified sales tax collection process.
Generally, the agreement requires that 1) there be a uniform state rate that sets restrictions on the number of different rates a state charges based on type of transaction, 2) the state must adopt a uniform definition of sales, exempt sales, allowances a seller can take for bad debts that agrees with other member states, 3) states adopt a uniform sales and use tax return and remittance requirements, 4) a state provides for state level administration of sales and use taxes for all jurisdictions within the state, 5) states wonât assert the seller has a business presence (making the seller liable for a variety of other taxes) simply because of registration for sales taxation purposes, 6) states to place restrictions on variances in state and local definitions of taxable sales, 7) there be restrictions on the frequency of changes in sales tax rates and various other privacy and audit related issues.
The bottom line is the Act, along with the Agreement, will provide for a way to collect and remit tax that makes it relatively easy for mail order and Internet vendors to administer. This, in turn will address the single biggest complaint of such sellers â the myriad of state and local rates.
How Does It Work?
The system, in its concept, is pretty easy. A seller will either contract with a Certified Service Provider (âCSPâ) to collect and remit taxes or purchase a Certified Automated System (âCASâ) and collect the taxes itself.
If the CSP route is taken, the CSP will be responsible for the remittance of taxes to the various states. The seller will be responsible for filing required sales tax reports. A provision that exempts the seller from audit by using a CSP makes this a very attractive alternative. Instead, the CSP is subject to joint audits to be certain the system is functioning properly. However, if there were probable cause to believe the seller is guilty of fraud or material misrepresentation, the seller would be subject to audit.
If the CAS route is taken, the seller is still liable for filing proper reports and remitting the tax on a timely basis. Naturally, in this instance, the seller can also be audited, regardless of whether there is a suspicion of fraud or not.
But I thought Congress said âNo more taxes!â
Just like our current Presidentâs father, Congress has said to us âRead our lips; No More Taxes!â on the Internet. However, the law expires in 2001 unless it is extended.
Presently, there are at least four bills in the U.S. Senate that range from a simple extension of the moratorium on new taxes on Internet transactions to making the moratorium permanent.
Two bills would allow for the imposition of taxes under the Agreement, if certain conditions are met. One of the major conditions is that twenty states enter into the Streamlined Sales Tax Agreement, or some similar agreement. A second requirement is that the taxation structure is simplified, which is the purpose of the Agreement.
The bottom line isâ¦
⦠donât expect to remain tax free on Internet and mail order purchases indefinitely. There is way too much at stake in the eCommerce debate for states to turn a blind eye at the potential loss of sales tax revenue. Their concerns will, in turn, force their Senators and Representatives to allow for the imposition of some form of sales tax for Internet and other mail order purchases. It is inevitable.
We suggest, if you disagree with the concept, that you write your Senators and Representatives. Being practical, we suggest you simply be aware of the coming sales taxes and not be surprised when they come. Someone once said, âGood taxes come to those who wait,â or is that âGood things?â
Guess it really doesnât matter. The fact is the time is coming when our sales tax holiday will be over. Donât be caught off guard.
Have a great month!!!
Thatâs not entirely a fair question and we know it. The fact is you get pretty good deals through mail order and Internet stores sometimes. The freedom from some sales tax is just a perk; a perk that will soon go away if state legislatures have their way.
At last count, there were actions pending in twenty-three states. Three of those states have enacted the Uniform Sales and Use Tax Administration Act (the âActâ) and only one has failed to pass it. Nineteen states still have the Act under consideration.
The Act
So what is the Act and why should we care? After all, itâs impossible to get two states, much less all fifty, to agree on anything, isnât it? They certainly wonât agree on sales tax issues.
To answer the second question, all you have to do is think of how much sales tax revenue states are losing. According to the National Conference of State Legislature, projected Internet sales will be $150 billion by 2003. Using a conservative sales tax rate of 4%, taking this level of sales out of the sales tax picture would cost state and local governments in the area of $6 billion â probably more.
Since the majority of state and local governments collect over 20% of their revenue from sales taxes, weâre talking about a significant impact on funding for state services. With this kind of money at stake, states will eventually come to some agreement on how to tax those sales.
The Act itself is a model law for states to follow in authorizing their tax collection agencies to enter into the Streamlined Sales And Use Tax Agreement (the âAgreementâ). The Agreement establishes the ground rules for a stateâs participation with other states in this simplified sales tax collection process.
Generally, the agreement requires that 1) there be a uniform state rate that sets restrictions on the number of different rates a state charges based on type of transaction, 2) the state must adopt a uniform definition of sales, exempt sales, allowances a seller can take for bad debts that agrees with other member states, 3) states adopt a uniform sales and use tax return and remittance requirements, 4) a state provides for state level administration of sales and use taxes for all jurisdictions within the state, 5) states wonât assert the seller has a business presence (making the seller liable for a variety of other taxes) simply because of registration for sales taxation purposes, 6) states to place restrictions on variances in state and local definitions of taxable sales, 7) there be restrictions on the frequency of changes in sales tax rates and various other privacy and audit related issues.
The bottom line is the Act, along with the Agreement, will provide for a way to collect and remit tax that makes it relatively easy for mail order and Internet vendors to administer. This, in turn will address the single biggest complaint of such sellers â the myriad of state and local rates.
How Does It Work?
The system, in its concept, is pretty easy. A seller will either contract with a Certified Service Provider (âCSPâ) to collect and remit taxes or purchase a Certified Automated System (âCASâ) and collect the taxes itself.
If the CSP route is taken, the CSP will be responsible for the remittance of taxes to the various states. The seller will be responsible for filing required sales tax reports. A provision that exempts the seller from audit by using a CSP makes this a very attractive alternative. Instead, the CSP is subject to joint audits to be certain the system is functioning properly. However, if there were probable cause to believe the seller is guilty of fraud or material misrepresentation, the seller would be subject to audit.
If the CAS route is taken, the seller is still liable for filing proper reports and remitting the tax on a timely basis. Naturally, in this instance, the seller can also be audited, regardless of whether there is a suspicion of fraud or not.
But I thought Congress said âNo more taxes!â
Just like our current Presidentâs father, Congress has said to us âRead our lips; No More Taxes!â on the Internet. However, the law expires in 2001 unless it is extended.
Presently, there are at least four bills in the U.S. Senate that range from a simple extension of the moratorium on new taxes on Internet transactions to making the moratorium permanent.
Two bills would allow for the imposition of taxes under the Agreement, if certain conditions are met. One of the major conditions is that twenty states enter into the Streamlined Sales Tax Agreement, or some similar agreement. A second requirement is that the taxation structure is simplified, which is the purpose of the Agreement.
The bottom line isâ¦
⦠donât expect to remain tax free on Internet and mail order purchases indefinitely. There is way too much at stake in the eCommerce debate for states to turn a blind eye at the potential loss of sales tax revenue. Their concerns will, in turn, force their Senators and Representatives to allow for the imposition of some form of sales tax for Internet and other mail order purchases. It is inevitable.
We suggest, if you disagree with the concept, that you write your Senators and Representatives. Being practical, we suggest you simply be aware of the coming sales taxes and not be surprised when they come. Someone once said, âGood taxes come to those who wait,â or is that âGood things?â
Guess it really doesnât matter. The fact is the time is coming when our sales tax holiday will be over. Donât be caught off guard.
Have a great month!!!
These articles are intended to provide general resources for the tax and accounting needs of small businesses and individuals. Service2Client LLC is the author, but is not engaged in rendering specific legal, accounting, financial or professional advice. Service2Client LLC makes no representation that the recommendations of Service2Client LLC will achieve any result. The NSAD has not reviewed any of the Service2Client LLC content. Readers are encouraged to contact their CPA regarding the topics in these articles.
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