The Internet Sales Tax, otherwise known as “The Marketplace Fairness Act”, has passed the Senate and now moves on to the House. There is a real chance this tax will be a law soon. It has been debated on and off for over 20 years. In 1992, the Supreme Court ruled that states could only force retailers to collect the tax if they had a presence in that particular state. For example, Amazon has distribution centers in 9 states, and if you live in one of those, you would need to pay sales tax currently on any purchases you make.
State Governments lose an estimated 12 billion dollars in state sales taxes that are not paid on purchases made online. This new tax would apply to companies with online sales of over 1 million, therefore many small online retailers are figuring out how to get below 1 million so they will not have to pay the sales tax. They say it will be too much of an unfair burden to them as they will have to pay the 46 states that collect state tax, hire computer programmers to reprogram their software in order to collect and pay the tax, and also be burdened by the overwhelming amount of paperwork involved. It is sure to put some of these retailers out of business, many say.
The small brick and mortar store, on the other hand, is in favor of this tax as it helps level the playing field. These folks already have to charge a tax on the items they sell. For example, suppose I am going to purchase a small hand-held camcorder. I can currently buy it online for less because there is no tax. Forcing state tax to be paid on the item makes the price equal to the amount charged in an actual store.
I discussed this sales tax with Win Damon on FM 106.1 and wnbp.com on Tuesday morning (click below to hear the podcast.) Immediately after the show I got an email from my dad who said: “So let’s set up a kitty and earmark all tax collected for a specific purpose, say internet crime protection or something like that.” Good idea, but we are talking about 46 different taxing authorities, and each can elect to do what it wants with the newly collected revenue.
Tune in every Tuesday to wnbp.com to hear our weekly chats covering many insightful tax and financial topics. Click below to hear this weeks show.
Stuart Steinberg of Eaglerock Financial, Inc. has worked with families for more than 20 years, helping them work toward their financial goals through a holistic, well rounded approach rooted in objectivity, education, and empowerment. Stu is highly regarded by clients and colleagues for his unique combination of investment, CPA and entrepreneurial experience in the high net worth market.
