Would it surprise you to know that whether you are a consumer or online retailer, you could be in violation of the law if you are not reporting and remitting sales taxes when you purchase or sell online? The lines are very grey at the moment, yet recent debates in Congress are making Internet taxes a hotter issue every day.
1. Consumer Reporting
Did you know that when you purchase an item online and are not charged a sales tax that, depending on the jurisdiction in which you live, you may need to be reporting and submitting a use tax? Neither do most buyers! Use taxes, an outfall of the Big Depression, were instituted when people began crossing state lines to purchase items that would otherwise have incurred sales tax where they lived. Because of the Internet tax wars, states like Oklahoma have recently begun campaigns to educate their citizenry – hoping for voluntary contributions. Unfortunately for our beleaguered local governments, enforcement is practically impossible – except when it comes to large items like motor vehicles and watercraft, which require licensing to operate.
2. It’s Complicated
With more than 11,000 geographic jurisdictions in the United States alone, the bookkeeping involved in registering, collecting and remitting sales taxes is a nightmare – not to mention the potential errors. Over one hundred updates and amendments take place every week, with many overlapping or overriding each other. Charging sales tax simply according to a tax table and zip code can easily get you into hot water (and coming out of pocket) later on. Exact locations and real-time tax rates are required to keep you on the mark.
3. The Pressure is On
Since the latest recession took hold, states began pushing Congress to ensure that all dot coms collect the appropriate sales tax from consumers as they make purchases online. Because sales or use taxes make up an average 1/3rd of state revenues, they could be losing a billion dollars or more each year. In tough economic times like these, this means government services such as police, highways, schools and others are decreasing – just when we need them the most.
According to a bill introduced in the summer of 2011 by democratic Senator from Illinois, Dick Durbin – the Main Street Fairness Act – only those states that have adopted the Streamlined Sales and Use Tax Agreement (SSUTA) would have the right to assert a required collection on remote sellers. The Marketplace Equity Act, proposed in November 2011 by a bi-partisan contingent, is said to have been a rapidly created “cover” to garner republican support for the stalled “Main Street” bill. Unfortunately it includes a threat to eliminate or undermine the SSTP, possibly taking Internet sales tax collection back to the dark ages. Neither act would impose a national sales tax on Internet purchases; if either act passes it would become federal law, but the administration and rate setting would be determined state by state.
5. Meanwhile Back at the Ranch
Staying in compliance with current laws is something best left to the experts, called SST providers, who can also provide you with appropriate software that integrates your books and your sales carts. There are only a handful of these Certified Service Providers in the U.S., contracted by the governing board of the Streamlined Sales Tax Project (SSTP) organized in 2000. Its objective was to un-complicate sales and use tax collection as an attempt by Congress to forever keep states from taxing, and possibly hindering, online commerce.