The myth of tax free internet sales
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 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 the only pages available.)
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Thanks for compiling this information. This is very helpful.
Darpan
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!
the same is also in europe, not only in North America, and probably all nations?
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.
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.
i think it depends on the company/place where u buy it from, because i know places, such as ‘abes of maine’ i dont have to pay taxes. i wish it was more widespread :S
-jack
If I sell a publication online to persons out of state
I do not need to pay sales tax,Right?
But, If someone in my state buys it then a state sales tax is expected from my end, Right?
What about my city Tax?
My business is sole propriotor
Sales tax is usually calculated based on the state, county and/or city. Here is Austin, Texas the state sales tax is 6.25% and the city tax is 2% for a total of 8.25%.
So when you sell online you need to collect sales tax from your customers for orders that are “shipped” in the same state that you operate in. You then need to pay your local gov’t the sales tax you collect.
You should contact a local tax office for the exact procedure and frequency you need to pay sales tax.
Well, until my state figures out a way to track my credit card purchases, I claim $0 subject to use tax on every tax return.
One of the reasons I shop online is to avoid state sales tax, which is too high. I’m certainly not going to pay it voluntarily until they can prove what I bought.
[...] Let me clear this one up: in most states with some sort of sales tax (I hesitate to say all, but here’s a list), you owe sales tax on all purchases, internet purchases from foreign or out-of-state vendors [...]
[...] Let me clear this one up: in most states with some sort of sales tax (I hesitate to say all, but here’s a list), you owe sales tax on all purchases, internet purchases from foreign or out-of-state vendors [...]
Updated links to the states that were missing.
[...] They call it the ‘Use Tax‘. It exists outside of South Carolina as well, and you can check up on the various states Use Tax laws here. [...]