Are you a tax cheat if you shop online tax-free?

By Stephen Ohlemacher

Associated Press

Published: Sunday, May 5 2013 8:31 a.m. MDT

The issue is getting bigger for states as more people make purchases online. Last year, Internet sales in the U.S. totaled $226 billion, nearly 16 percent more than the previous year, according to Commerce Department estimates.

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.

The study was done for the National Conference of State Legislatures.

"This is a sales and use tax which is on the books," said Michael Kercheval, president and CEO of the International Council of Shopping Centers. "This isn't a tax issue. It's a tax collection issue."

Kercheval's group is part of a broad coalition of retailers that supports Enzi's bill, including Internet giant Amazon, which says it wants a uniform national policy for collecting taxes on Internet sales.

Supporters say the bill makes it relatively easy for Internet retailers to comply. States must provide free computer software to help retailers calculate sales taxes, based on where shoppers live. States also must establish a single entity to receive Internet sales tax revenue, so retailers don't have to send them to individual counties or cities.

"The same software that allows people to figure out shipping costs by ZIP code can figure out what the taxes are," Kercheval said.

Opponents say the bill doesn't do enough to protect small businesses. EBay wants to exempt businesses with less than $10 million in sales or fewer than 50 employees.

"Complying and living under the tax laws of 50 states is a major undertaking because the process of complying with tax law goes far beyond just filling out the right forms," said Brian Bieron, eBay's senior director of global public policy. "You have to deal with the fact that all of these government agencies can audit you and can question you and can actually take you into court and sue you if they think you are doing something wrong."

Davis, the co-owner of Fashionphile.com, said even with free computer software, her business doesn't have the manpower to separate sales taxes for each state and meet each state's deadline to send in the money.

"We collect and pay sales tax here in California and we're happy to do that. We receive benefit from that. We can influence lawmakers locally on how those taxes are spent and how much those are and how they're collected," Davis said.

"I don't feel the same about Indiana."

Follow Stephen Ohlemacher on Twitter: http://twitter.com/stephenatap

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