Ready for the Online Retail Tax?

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Online Retail Taxes

Source: web

By now, most have heard that the U.S. Senate has finally come full circle and passed an online retail tax bill that makes sales tax on ecommerce sites legal. Will it get past the House?

It applies to service providers and retailers who buy and sell in the digital marketplace. The vote was a 69-27 split and the bill is titled the Marketplace Fairness Act. Even if you do business online and don’t have a physical American address, you’re still going to have to pay taxes – even if no one is quite sure how to pull it off.

Online Retail Tax Inevitable

It was bound to happen; after all, we’re spending more and more time online these days – and we’re given e-tailers much of our money. The numbers are rising on average around one percent every year. Brick and mortar businesses have been given less than an ideal situation: it’s difficult for them to compete when their one-time customers are opting for no sales tax, easy shipping and the ability to choose a new refrigerator without having to do their hair or even put on clothes.

While we’ve been hearing about this possibility for many years, when Governor Haley Barbour, Mississippi’s governor until this past election, said he’d now be spending time in an effort of getting it passed, it was just a matter of time before it came to the forefront. That, along with the drive of many retailers, has pushed the drive as well. Maybe it was Wal Mart, though, that was the biggest driving force with its lobbying efforts. It’s believed states lose $12 billion a year in tax revenues due to the online retailers. The goal, say supporters, is to eliminate that unfair advantage.

Legislation Already Exists

What many may not know is there is legislation already in place – and has been since the early 1990s. These laws prohibit businesses from collecting sales tax unless they were “in the region”. States couldn’t force them to do so, either. It mattered none whether it was a retail outlet or a distribution warehouse, firms with an established corporeal location were allowed to charge taxes on their sales revenue. The new law, Marketplace Fairness Act, changes this in its entirety. It allows each independent state the authority to apply online tax to retailers that earn more than $1 million in gross sales each year.

As mentioned, Barbour is one of the most recognizable advocates of supporting the rights of states to make their own decisions when it comes to collecting taxes. One of his colleagues said, late last year at a gathering,

I think what he would say is it’s not an online sales tax, but it’s allowing states to enforce their own sales tax laws and collect revenue that is owed to them. It was an issue he felt strongly about as a governor. It’s very consistent with his personal beliefs.

Meanwhile, a spokesperson for Retail Industry Leaders Association says Barbour’s passion began while he was still governor of Mississippi,

He spoke very passionately at the end of his term about the need for e-fairness, and we brought him to speak to our board about a wide range of topics, including e-fairness,

said Jason Brewer, RILA’s vice president of communications and advocacy.

Both insist, however, Barbour’s work didn’t begin until he left office,

There weren’t any conversations until he was physically back in the firm,

Monroe said. The BGR lobbyist said the firm started talking to RILA about representation in late January and began lobbying for the group in March.

Other factors that have brought this issue to the forefront is the certainty online retail sales in the U.S. are expected to continue their northward climb between now and 2017. Currently, close to $260 billion is traded in the U.S. each year and it’s expected to $434.2 billion by 2017. Without changes in the laws, it would allow online retailers the opportunity to take out a “greater share” of the market without the regulations others must adhere to.

Technological Factors

The changes also have a technological angle that plays a role in these efforts. There was a time in the not so distant past that states – especially those with tighter budgets – have simply avoided imposing online taxes due to the complicated and complex regulations. That, if and when the new law takes effect, won’t be such of a stumbling box. The technology will begin to work to the advantage of those states. The new algorithms and software will automate the efforts of collecting sales taxes on a national and even global level.

For the short term, it’s likely the House of Representatives will show opposition. It will have immediate implications for both businesses and the consumers who shop online. The tax free purchases will fall away, which could turn them back to local merchants in search of better deals. What’s interesting is there’s been little – if any – studies conducted on these effects. The last wide reaching effort was conducted in early 2011 and the Forrester Research showed that 25 percent of consumers say the online taxes would affect the way they buy products as it would also affect their spending budgets.

Marketing and Branding

And then there are the branding and marketing efforts. Amazon would be forced to implement sales taxes, even downloaded music and movie purchases will now come with a sales tax. On a more organic level, there are far more important considerations: the alarming rise of poverty in this country. It all has a direct impact on the way families spend money. And before you think it can be that much of a big deal, think again. Many families are buying groceries online – especially when they can get better deals in bulk items on sites such as Amazon. The absence of a sales tax allows them to stretch their very carefully budgeted dollars.

Whether or not those truths have been considered is not known. If they have, no one in Congress is mentioning it.

So what are your thoughts? Should our online purchases be taxed?

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About Author

Casey is a seasoned writer in personal finance. He has written a number of articles that have been published in magazines and blogs around the country. His advice has helped millions make better choices about how they save their money.


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