The myth of tax free internet sales

December 12, 2007

It has been a long held belief by most online shoppers that out of state internet purchases are tax free. I have to admit that I believed this for a long time myself, but unfortunately it's not the case.

Just to dispel any theory dissolving that old 'Death and Taxes' quote, internet purchases are not tax free. That's right. As the wording goes, most internet companies don't have to collect out of state sales tax. However, consumers, businesses and any end users still must pay a "Use Tax" on non-taxed purchases that they make through mail-order or online.

Most states currently have Use Tax which specifically requires consumers to pay their state sales sales tax on purchases they make online that are not taxed by the business. There are some exemptions for certain types of products and for states that do not have any sales tax, but for the most part taxes on these purchases are required to be paid to your state government. With the exception of very large purchases, use tax is rarely if ever monitored, as it would simply be an impossible feat for any state government to handle. However, we can all be sure that states are losing out on millions if not billions in uncollected taxes, so if you aren't paying them, enjoy the free ride while it lasts.

Here's a Use Tax table that I came up with covering which states require it:
(Let me pre-apologize about all of the PDF links here, Government websites are about as bad as they come,and in many cases PDF's are all that's available.)

State

Use Tax

Link
Alabama Yes http://www.ador.state.al.us/salestax/index.html
Alaska No  
Arizona Yes http://www.azdor.gov/brochure/610.pdf
Arkansas Yes http://www.arkansas.gov/dfa/excise_tax_v2/st_index.html
California Yes http://www.ftb.ca.gov/current/usetax.shtml
Connecticut Yes http://www.ct.gov/drs/cwp/view.asp
Colorado Yes http://www.revenue.state.co.us/fyi/html/generl10.html
Delaware No  
Florida Yes http://dor.myflorida.com/dor/taxes/sales_tax.html
Georgia Yes http://www.etax.dor.ga.gov
Hawaii Yes  
Idaho Yes http://tax.idaho.gov/use_tax.htm
Illinios Yes http://www.revenue.state.il.us/Businesses/TaxInformation/Sales/rot.htm
Indiana Yes http://www.state.in.us/dor/individual/use.html
Iowa Yes http://www.state.ia.us/tax/educate/78535.html
Kansas Yes  
Kentucky Yes http://revenue.ky.gov/business/salesanduse.htm
Louisiana Yes http://www.revenue.louisiana.gov/sections/individual/conuse.aspx
Maine Yes http://maine.gov/revenue/salesuse/homepage.html
Maryland Yes http://individuals.marylandtaxes.com/usetax/default.asp
Massachusetts Yes http://www.mass.gov/Ador/docs/dor/Publ/PDFS/sales_use_07.pdf
Michigan Yes http://www.michigan.gov/treasury/…….html
Minnesota Yes http://www.taxes.state.mn.us/…….CM1_002975.pdf
Mississippi Yes http://www.mstc.state.ms.us/taxareas/sales/main.htm
Missouri Yes http://dor.mo.gov/tax/business/sales/
Montana No  
Nebraska Yes http://www.revenue.ne.gov/salestax.htm
Nevada Yes http://tax.state.nv.us/documents/…..pdf
New Hampshire No  
New Jersey Yes http://www.state.nj.us/treasury/taxation/su_10.htm
New Mexico Yes http://www.statetaxcentral.com/New_Mexico/Sales_and_Use_Taxes/
New York   http://www.tax.state.ny.us/pdf/publications/sales/pub850_207.pdf
North Carolina Yes http://www.dor.state.nc.us/taxes/sales/
North Dakota Yes http://www.nd.gov/tax/misc/faq/salesanduse/index.html
Ohio Yes http://tax.ohio.gov/divisions/sales_and_use/index.stm
Oklahoma Yes  
Oregon No  
Pennsylvania Yes http://www.revenue.state.pa.us/revenue/cwp/view.asp?a=13&q=250484
Rhode Island Yes http://www.tax.ri.gov/documents/information/use_tax.pdf
South Carolina Yes http://www.sctax.org/Tax+Information/Sales+and+Use+Tax/
South Dakota Yes http://www.state.sd.us/drr2/businesstax/st/usetax.htm
Tennessee Yes http://state.tn.us/revenue/tntaxes/salesanduse.htm
Texas Yes http://www.window.state.tx.us/taxinfo/sales/faq_use.html
Utah Yes http://www.tax.utah.gov/sales/
Vermont Yes http://www.state.vt.us/tax/pdf.word.excel/misc/majorvttax-s&u.pdf
Virginia Yes  
Washington Yes http://dor.wa.gov/Docs/Pubs/ExciseTax/RetailSales_UseTax/UseTax.pdf
West Virginia Yes  
Wisconsin Yes http://www.revenue.wi.gov/html/sales.html
Wyoming Yes  
DC Yes http://cfo.dc.gov/cfo/cwp/view,a,1324,q,612629.asp

Posted by jestep | Filed Under General 

Comments

4 Responses to “The myth of tax free internet sales”

  1. Darpan Munjal on December 25th, 2007 1:10 am

    Thanks for compiling this information. This is very helpful.

    Darpan

  2. Shopping Cart Junkie on December 31st, 2007 10:31 am

    Hi,

    Just curious if this is in addition to sales tax, or instead of? In other words…if the online merchant pays the state sales tax, is the consumer still obligated to pay usage tax?

    Thanks!

  3. Matteo Raggi on January 7th, 2008 6:11 pm

    the same is also in europe, not only in North America, and probably all nations?

  4. jestep on January 7th, 2008 9:18 pm

    Hi,

    Just curious if this is in addition to sales tax, or instead of? In other words…if the online merchant pays the state sales tax, is the consumer still obligated to pay usage tax?

    Thanks!

    A long as sales or use tax is paid by either party then everything is OK. It doesn't need to be paid more than once, but one or the other does need to be paid.

    the same is also in europe, not only in North America, and probably all nations?

    If you know any specific links to rules in Europe let me know and I'll post them up here.

    I think the biggest issue is that people actually think that their purchases are tax-free when they definitely aren't. I doubt that most people are even doing it intentionally, but I think that a huge number of sales go completely un-taxed.

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