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Will an Internet Sales Tax Change How You Shop?

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After a rocky beginning to the relationship, I’ve grown to appreciate Amazon.com. For the most part, the online retailer still boasts the best prices, shipping can be free, and if your purchases are delivered to New Jersey or one of several other states, Amazon doesn’t add sales tax to the purchase.

Lobbyists that represent all retailers, almost all of which are not Amazon and other smaller online businesses, see the avoidance of sales tax as unfair competition. Under current law, online retailers only charge sales tax when the company has a physical presence — a warehouse or an office — in the same state as the buyer (or recipient of the delivery). The issue of sales tax is one for the states and cities.

Brick-and-mortar stores are already at a disadvantage. They have to pay for retail infrastructure, like storefronts and employees to manage and sell products in those stores. With higher costs, stores with physical locations need to sell their products at a higher price to maintain profits. From a shopper’s perspective, especially a frugal-minded shopper who shops around for the best price, brick-and-mortar stores need to price more competitively. These old-fashioned retailers need to adapt to a changing environment if they want to be profitable and survive. That’s free-market capitalism.

The proposed law will change the rule. Any business with more than $1 million in annual sales will need to charge sales tax for every customer who lives in a state that has a sales tax — all but five. Each business will need to know how to calculate that correct sales tax for each customer. That’s easy enough for a company like Amazon, but for a family business that has taken its shop online only to see viral success, this could be a burden. Trying to determine the correct sales tax for a delivery in New York makes business owners cringe thanks to the variety of tax rates on the local level, within the same ZIP code, and a small business will not be equipped to handle this.

There is some good news for some businesses. If you are a accountant who provides services for retail businesses, your pool of clients is getting bigger. If you are a software developer in the retail industry, many businesses will be looking for affordable solutions for calculating and collecting sales tax. The new or increased need for these services must be paid for, and that’s most likely to come from an increase in product sales.

The $1 million exemption should ease the burden on truly small companies.

Not only will customers also have to pay sales tax when shopping online, but the prices they pay will eventually be higher, which goes further to negate any pricing advantage shoppers see from online retailers.

Did you know you’re supposed to volunteer to pay a tax for purchases where the retailer doesn’t collect sales tax? Each state with a sales tax has a special question on their income tax returns. If you made a purchase at an out-of-state retailer or an online retailer that did not charge sales tax, you are supposed to let the state know about any purchases that qualify and pay the appropriate sales tax when you file your income tax return. As I understand it, very few people do this, and states have no ability to enforce the law.

States lose about $12 billion in total revenue because of their lack of enforcement ability. The new law will recover all of it. With many local governments operating in financial crisis still due to the economic recession, the newly-found revenue will help necessary local government services remain functional. This won’t have the same impact or reach as recent federal stimulus plans, but having $12 billion is better from a planning perspective than not having $12 billion.

By the same respect, that’s $12 billion less in the consumers’ hands for spending on more products; in fact, when the products and services you can buy today cost $12 billion more “tomorrow,” when the tax goes into effect, that could be considered backdoor inflation — where increased costs are the result of tax law changes, not necessarily an increase in the money supply.

I’m most interested in how you think this change to the collection of sales tax will affect your shopping. Will you be, as the lobbyists hope, more likely to patronize your local stores once your favorite online retailer charges sales tax for internet purchases?

I don’t think this will affect my shopping behavior. Once you grow accustomed to the convenience of online shopping, you will be more likely to continue that convenience, even if it comes at a cost. But I may be different than other people. Will you shop differently?

Published or updated May 6, 2013. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes, also known as Flexo, is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about him and follow Luke Landes on Twitter. View all articles by .

{ 20 comments… read them below or add one }

avatar krantcents

It will level the playing field. I will expect more of a discount to counteract the delay of receiving the merchandise. If I get a 25-50%, I add the sales tax savings to it.

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avatar jim

Personally I think its only fair that sales tax is charged for internet purchases. I can’t think of a good reason why it isn’t. It gives internet sales companies an unfair advantage.

I don’t think determining the correct sales tax rate is a challenge. You can simply look that up based on ZIP code. I think the bigger problem for small businesses is paying the tax to the states. Each small business would have to process and send in a form and a check for every single state they sell to. That means dealing with 45 state bureaucracies. But it shouldn’t be hard to have a universal service handle this. States could set it up so you send in one form, a invoice of all your sales and a single check to one central location.

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avatar Steve

Where does one look up tax rate for zip codes in one place? And any merchant with an e-commerce site will need to bake that into their checkout process.

Based on the studies I’ve heard of about how people consider taxes, typically they don’t. I don’t think this will change many people’s shopping habits. What they might, conceivably do is run out of money a little faster than they expected. So to the extent that happens, it’s neither inflation nor a revenue increase, just a shifting of spending.

Personally, I live in WA so I’ve already been paying sales tax on a significant portion of my online purchases.

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avatar jim

I googled ‘sales tax by zip code’ and multiple sites came up. zip2tax.com, zip-tax.com, thestc.com.

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avatar RB Boren

I’m an online seller and a buyer of mostly low-priced, thinly-traded, paper collectibles, living in a state without a sales tax. While I won’t have to collect sales taxes from my direct online buyers – my annual sales are nowhere close to $1 million – my indirect buyers (eBay, Amazon, Etsy) will be charged sales tax at checkout.

So this proposal will affect most of my selling. A lot of buyers will respond to paying sales tax by reducing their bids, which is generally bad for me as a seller and good for buyers (including me) in no-tax states. But my buyers won’t respond by buying locally, since my items are hard to find, rarely available locally, and (because the market is so thin) hard to sell locally.

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avatar Christian L.

Luke,
I’m not sure I’ll give it much thought. I don’t do enough shopping in general to save a considerable amount on sales tax annually. Plus I’m often looking for very particular items, some at local stores and some online. So I doubt my habits will change because of the tax.

-Christian L. @ Smart Military Money

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avatar Juggler314

I doubt it – it was a nice perk while it lasted. But mostly I shop online simply because I prefer to shop online – not because I’m trying to avoid paying tax. At my income level it’s not really a drag to have to pay legitimate tax on purchases anyway (I mean sure it cuts into my overall spending, but not enough that it will make me shop around for smaller stores that don’t charge tax – plus I tend to agree that since we should all be paying these taxes anyway, it’s one thing to get it as a perk from everyone, and another thing to specifically go out of your way to dodge it).

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avatar Jenny @ Frugal Guru Guide

I think it’s stupid to be asked to collect tax in the state in which the buyer lives. The transaction is happening at the seller’s location, not the buyer’s, so it should occur only in the seller’s location.

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avatar Mike

Funny how the fact that this is just another tax increase to support city and state spending doesn’t even come up. $12 billion is a LOT of money, at least in my book.

I don’t expect this will change what little shopping I do online or otherwise, but throwing that money into a black hole could be expected to eventually reduce overall commerce by a similar amount. That is the last thing we need to do with a slow recovery from the great recession only beginning to gain traction.

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avatar jim

I would argue that its not a ‘tax increase’ but actually the governments finally cracking down on years of tax evasion.

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avatar SteveDH

I would argue that it wasn’t tax evasion, which is criminal, because they/we were complying with the law. Where I live there was a threshold of $6,000 before “use” tax reporting was required. Removing the ability to avoid taxes (a multi-million dollar industry in itself) is a tax increase to me ;-)

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avatar Lance @ Money Life and More

If there is something I really want and the price difference isn’t huge I might drive to best buy. I think this will help them a lot!

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avatar Ian

Isn’t Amazon supposed to start collecting sales tax in NJ for purchases to NJ, beginning July 1, 2013 since Amazon plans to build warehouses near/in Robbinseville and possibly another location?

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avatar DonnaFreedman ♦75 (Newbie)

I’m trying to support the local economy by purchasing stuff here in the community. However, I do buy from Amazon because of all the free Amazon GCs that I earn from a rewards program. This has allowed me to do a fair amount of holiday and birthday shopping for free.
If sales tax is added, I’ll pay it without complaint. It’s always seemed unfair to me that online sellers don’t have to ask for it.
Here in Anchorage there isn’t a sales tax but we do have the “Alaska Gouge,” i.e., the higher prices due to the cost of flying or barging goods up here.

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avatar SteveDH

After deciding whether or not I need it now or can wait, the total price will always dictate where I buy from. Total price includes the item, shipping cost, and its tax. Purchases from Amazon and others via the web usually won because they can price lower, didn’t charge tax, and often provided no-additional-cost shipping. The addition of sales taxes may change the equation but if they still provide a lower price point – I’ll buy form them. As you point out major online retailers, without storefront operations, can usually price their goods lower regardless, so paying a sales tax won’t change my buying behavior.

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avatar wylerassociate ♦162 (Cent)

I don’t expect my shopping habits will change with the internet sales tax. I still plan on buying products from amazon.

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avatar Ceecee ♦53 (Newbie)

I love shopping on Amazon, and I have no problem with paying the sales tax. Like Donna, I get a lot of Amazon credits on reward sites. And I think that this is long overdue to level the playing field for the small local shops. I know that they need that boost here at the Jersey Shore.

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avatar Yana

I had thought that the beginning of having to pay sales tax at Amazon would save me money and not benefit brick and mortar stores, but it isn’t entirely true for me. While I have made fewer purchases at Amazon, it is because I’ve gotten the items elsewhere online without paying sales tax, or just not made the purchase at all. Also, some sellers on Amazon still have not charged sales tax. Just yesterday, I considered buying a specialty gamer’s mouse at Amazon. I put it in my cart to see whether it would incur sales tax, and it did, so I did not buy it. Then I went to Best Buy online, and saw that they match Amazon prices. Today I went to Best Buy to get that mouse, and they took off over $30 to match the price. So, what I thought would never happen just did. I don’t like paying sales tax, so my revised bottom line is that I will continue to make fewer purchases, but some things are just essential – like anything to do with computers ;)

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avatar JenW

I love shopping at Amazon (have for years!) and probably will continue to do so because of the service I have gotten, at least for things I have to have. But I will not buy gifts or fun things any more in order to budget. When my car gives out I will go to brick and mortar stores less than I do now because I hope not to purchase any more cars, so Amazon still will be in my future for bare necessities.

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avatar qixx ♦1,890 (Half-Dollar)

I too do almost all of my online shopping through Amazon. Difference being i’m ion one of the states where Amazon already collects sales taxes. Nothing will change for me. Depending on the actuall wording marketplace sales through something like Amazon still might not have sales tax collected as the sellers are the people who list the product even though you buy it through Amazon.

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