The Basics About Internet Sales Tax

Written by on June 16, 2013 in Money - No comments | Print this page


tax imageThe government has traditionally charged sales tax on all retail sales and this is usually collected by the retailer at the point of sale.

This sales tax is set by the state at a certain percentage of the retail selling price. Now most states are either considering or putting into effect the collection of taxes on retail sales made over the internet.

Quill Corp. vs. North Dakota

In 1992, the United States Supreme Court made a ruling in the Quill Corp. Vs North Dakota (504 U.S. 298) case that has had nationwide implications on internet sales tax.

The ruling’s effect on online sales is that an online retailer is not required to collect tax on sales made to a customer in another state where the retailer has no physical presence.

Marketplace Fairness Act, 2013

In 2011, three U.S senators sponsored a bill to overrule the Quill Corp. vs. N. Dakota ruling and allow states to collect internet sales taxes.

Major brick-and-mortar retail firms such as home depot and Wal-Mart have demonstrated wide support for the bill and so have some online retailers such as Amazon though most online retailers, such as eBay, strongly oppose the bill.

On 6th May, 2013, the U.S senate approved the Market Fairness Act and the house committee on the judiciary is considering a companion Bill introduced on 14th February, 2013.

Internet Sales Tax Facts

The first thing anyone should understand is that the sales tax is not paid by the retailer, it is paid by the buyer. The retailer simply collects the tax.

The second fact is that the sale takes place where it is concluded. That means, the sale is not Freight on Board (FOB) at the retailer’s dock but is completed where the buyer receives the merchandise. Therefore, tax will be paid to the state where the buyer is, not the state where the retailer is located.

A third fact is that buyers are not absolved from paying tax even if the retailer does not collect it. Therefore, if you purchase something and the seller does not charge you sales tax, you are required to pay the tax directly to the state.

Internet Sales Tax Implications

It goes without saying that with the implementation of internet sales tax collection, it will be much more expensive for you and I to purchase goods and services online.

This could reduce the competitive advantage that small start-ups have been enjoying and reducing the competition faced by big retailers. This could also lead to a decrease or elimination of value and the selections offered by small businesses.

The implementation of these tax legislations will also result in added responsibilities on small business-owners as they will be expected to put in place mechanisms to collect sales tax on every customer’s purchase and remit the same to the state and federal tax agencies.

This would also mean increased liabilities placed on the small businesses which include potential audits by tax collectors from other states. Similar tax liabilities and responsibilities would apply on the buyer since they have to remit the tax directly if the seller fails to charge tax on the purchase.

The recent passing of the Marketplace Fairness Act, 2013, has been a controversial subject with many seeing it as retrogressive in that it will discourage small business which has been touted as the best cure for the ailing economy. However, there are many arguments in support of levying taxes on online sales.

This guest blog post has been written by shahrin with the coordination of tax attorneys team. She is a niche blog writer and loves to write on finance, banking, and health niche.

Image courtesy of Stuart Miles /


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