Point, Click, Shop
Online shopping booms; but what about those taxes?
Online shopping is a fast, convenient alternative to fighting crowds, but it often means lost sales tax revenue for state and local governments.
“In fiscal 2006, Texas lost an estimated $541 million in state sales tax on an estimated $8.6 billion in Internet and mail-order sales,” says Texas Comptroller Susan Combs. Nationally, remote sales accounted for almost 3.5 percent of total sales in 2007’s third quarter, an all-time high of almost $34.7 billion.
Texas could begin collecting some of those sales and use taxes if it joins the Streamlined Sales Tax (SST) Project, which was amended late last year to include a compromise that makes it more likely the state will participate.
Until late last year, the SST Project required member states to use “destination sourcing” – to collect the sales tax in effect at the location of the buyer, and to send the money collected to those locations. This was opposed by Texas and some other states, in large part because of the threat it posed to local sales tax revenue.
“Texas lost an estimated $541 million in state sales tax on Internet and mail-order sales.”
— Texas Comptroller Susan Combs.
That requirement was changed by the SST Governing Board last December, when the 22 member states agreed to allow “origin sourcing” – charging the rate in effect at the seller’s location – but only for in-state sales.
At the same time, under the terms of the compromise, these states would employ destination sourcing for sales to purchasers in other states.
“This compromise is a major step forward on the long road toward allowing states to collect sales tax that is rightfully due on Internet and mail-order sales,” says Combs.
Online Push
The SST’s 2007 decision is a step in the right direction for origin states such as Texas, but the compromise also includes an important change that could affect some local governments.
The new SST sourcing amendment takes effect on or after Jan. 1, 2010, provided that five states seeking membership in SST elect to use the dual-sourcing compromise approved in December. Since Texas’ participation would require approval by the Texas Legislature, the earliest the state could seek membership in SST would be next year, after the 81st Texas Legislative session.
“The Streamlined Governing Board is very hopeful that Texas will also begin drafting legislation for our 2009 session,” says Robin Corrigan of the Comptroller’s Tax Policy Division. FN
Buyer Beware
Sales tax is, in fact, due on quite a few remote purchases and it is often the responsibility of the purchaser to know and report that.
“State and local use tax is due on all taxable items purchased out of state and brought or shipped into Texas for storage, use or consumption,” says Robin Corrigan with the Comptroller’s Tax Policy Division. “Many consumers simply aren’t aware that they owe use tax on out-of-state purchases.”
Others may believe the Internet Tax Freedom Act prohibits the taxation of Internet transactions, which is not the case, she says.
Several retailers — including Best Buy, Cabela’s and Wal-Mart — collect Texas sales and use tax on their online transactions. If the seller, however, does not collect the tax, purchasers can remit the applicable taxes via the Texas Occasional Use Tax Return on the Comptroller’s Web site.
The Rise of E
E-commerce sales in the United States have increased quarterly since 2000. E-commerce now represents about 3.4 percent of total U.S. sales, up from 0.8 percent in 2000.
- Quarter–Year
- E-commerce sales estimate
Source: U.S. Census Bureau