Sales Tax on Internet Transactions

Tax Professionals' Resource
October 8, 2012 — 1,111 views  
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The days of tax-free purchases from online retailers such as Amazon.com are quickly coming to an end. While consumers enjoy saving money because they do not have to pay sales tax on their purchases, lawmakers say that their states are losing money because they are not receiving sales taxes revenue.

Not only have lawmakers been complaining about the sales tax issue, but brick-and-mortar retailers such as Sears and Wal-Mart, contended that they cannot fairly compete with online retailers that do not charge state sales tax. 

To rectify this, many state legislatures have either passed or proposed what's being called "Amazon laws," which is legislation requiring online retailers to begin charging state sales and use taxes. While the focus has been on Amazon, the laws are aimed at all large retailers that sell merchandise online in states where they have no brick-and-mortar buildings. 

California enacted a law earlier this month requiring online retailers to begin charging a state sales tax. After years of opposing the proposal, Amazon agreed to begin collecting state and local sales tax on Sept. 15. The company is also building a distribution center outside of Los Angeles. According to the Los Angeles Times, new taxes from online purchases from Amazon alone could bring in an estimated $100 million in the first year. California's sales tax rate is 7.25 percent, but can go as high as 9.75 percent in some communities that add local surtaxes.

In June, Amazon started collecting sales taxes in Texas after business owners and lawmakers there pushed for e-fairness laws. In addition, online retailers started collecting sales taxes in Pennsylvania in August. 

Other states, like Michigan, have yet to pass legislation. According to a report to Michigan lawmakers, who introduced the Michigan Main Street Fairness Act in September 2011, the state could recover up to $141.5 million in lost sales tax and generate up to $126 million in additional sales. Michigan's sales tax rate is 6 percent. Michigan's bipartisan proposal requires brick-and-mortar stores and online retailers to operate under the same state sales tax collection laws. 

Pending in Washington, D.C., is a similar version of the Main Street Fairness Act, which was introduced in the House and the Senate in July 2011. The bill would allow states that are members of the Streamlined Sales and Use Tax Agreement to authorize online retailers with no physical presence to collect state and local taxes. 

Tax Professionals' Resource


The days of tax-free purchases online are quickly coming to an end as lawmakers say that their states are losing money because they are not receiving sales taxes revenue. This article outlines laws that are being set into place to require the tax.