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Published: Monday, 5/6/2013

INTERNET COMMERCE

Most states charge, but don’t receive sales tax

Not paying might make you a cheater

ASSOCIATED PRESS

WASHINGTON — Buy anything on the Internet lately without paying sales tax?

In all but a few states, you’re probably a tax cheat.

Even if Internet retailers don’t collect sales tax at the time of the purchase, you’re required by law to pay it in 45 states, including Ohio and Michigan.

Here’s the problem for states: hardly anyone pays the tax, and there’s not much states can do about it.

The Senate is expected to pass a bill today making it easier for states to collect sales taxes for online purchases.

Some of the nation’s largest retailers are rejoicing.

But small-business owners who make their living selling products on the Internet worry they will be swamped by new requirements from faraway states.

Under the law, states can require stores to collect sales taxes only if the store has a physical presence in the state.

That means big retailers, such as Wal-Mart, Best Buy, and Target, with stores all over the country collect sales taxes when they sell goods over the Internet.

But eBay, Amazon, and other online retailers don’t have to collect sales taxes, except in states where they have offices or distribution centers.

As a result, many online sales are essentially tax-free, giving Internet retailers an advantage over brick-and-mortar stores.

But the purchases aren’t really tax-free under the law.

In states with sales taxes, if you buy something from an out-of-state retailer and don’t pay taxes, you are supposed to pay those taxes when you file your state tax return, said Neal Osten, director the Washington office of the National Conference of State Legislatures.

Only Delaware, Montana, New Hampshire, and Oregon have no sales tax. Alaska has no state sales tax but does have local ones.

Unpaid sales taxes are usually referred to as “use taxes” on state income tax returns. Use taxes apply to purchases made over Internet, from catalogs, from television and radio ads, and directly from out-of-state companies. State officials, however, complain that few people pay these taxes, Mr. Osten said.

Under the bill in the Senate, the sales taxes would be sent to the states where a shopper lives. Businesses with less than $1 million a year in out-of-state sales would be exempt.

The Senate is expected to pass the bill today, but it faces an uncertain fate in the House, where some Republicans consider it a tax increase. Supporters say the bill is about fairness for local businesses that already collect sales taxes, and lost revenue for states.

Many governors, both Republicans and Democrats, have lobbied the federal government for years for the authority to collect sales taxes from online sales.

States lost a total of $23 billion last year because they couldn’t collect taxes on out-of-state sales, according to a study by three business professors at the University of Tennessee. About $11.4 billion was lost from Internet sales; the rest came from purchases made through catalogs, mail orders, and telephone orders, the study said.



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