Don't Mess With Taxes

How's your Cyber Monday going? I hope you haven't run into any shopping or sartorial problems.

Or, of course, any tax issues.

Use taxes ignored: Online shopping has become a popular tax haven. Technically, though, you're probably breaking your state's tax law.

If you live in a state that has a sales tax (only five don't) and you buy an item somewhere else, either in another state that you visited or via mail or online, and the seller doesn't collect your state's sale tax, you're supposed to pay it.

You do so by filing a use tax return.

Use taxes are exactly what the name says, a tax on an item you use in your home state. They are the same rate as your state sales tax.

Several states have added a use tax line to their personal income tax forms, but basically the use tax is useless. People just ignore it.

So to get around uncollected sales taxes at the time of purchase and useless use taxes, states have gone after remote sellers, those online shopping options, to get the missing tax money.

Nexus sales tax collection roots: The taxes on online purchases are popularly known as Amazon taxes because the giant online retailer accounts for so much of the cyber sales total and because it's been active, until recently, in fighting online sales tax collection.

But any remote seller could be on the hook for collecting sales taxes if it has a physical presence in a state.

The legal term is nexus, which was key in the U.S. Supreme Court's decision in Quill v. North Dakota. In that 1992 case (which was about catalog sales back then), the justices said a company must have a physical presence in a state, aka nexus, in order for that state to collect sales and use taxes.

Then along came the Internet.

Nexus is still the sticking point, but states are expanding what they consider physical presences. Amazon affiliates, call centers, distribution facilities and the like are used to connect an out-of-state seller so that state tax collectors can demand collection of sales taxes on products sent to their state's residents.

Amazon tax explosion: Amazon fought the taxes, canceling affiliate programs and threatening to move or not build warehouse operations.

Then the Seattle-area sales behemoth tried bribing ransoming working with states, saying they'd stay in or come to states in exchange for sales tax collection relief.

But then Amazon finally relented, simply postponing tax collection for a while.

Now the company collects sales taxes on sales and shipments to buyers in California, Kansas, Kentucky, New York, North Dakota, Pennsylvania, Texas and Washington.

In 2013, Amazon will begin collecting sales taxes in Arizona (Feb. 1 for products; July 1 for digital sales), New Jersey (July) and Virginia (September).

Indiana, Nevada and Tennessee shoppers will begin paying online sales taxes in January 2014.

South Carolina becomes an Amazon sales tax recipient in January 2016.

Some Indiana lawmakers are pushing for earlier Amazon tax collection. Massachusetts is trying to get its piece of the cyber shopping tax pie.

Amazon officials say they prefer that there be a national online sales tax measure that would clarify and simplify online sales tax collection across state lines.

Two bills, one in the House (the Marketplace Equity Act) and one in the Senate (the Main Street Fairness Act), have been introduced to do just that. There appears to be growing support in Congress for the legislation.

Does it matter? While people never want to pay taxes, I don't see the tax-free issue being as big an economic driver as it once was.

People have had to face the hard fiscal facts that their states need money. They're not happy they've lost or will soon lose this sales tax break, although they were actually acting as online tax cheats themselves.

But they realize that online sales taxes are eventually on their way for everyone.

As I told the Washington Times, some folks now might decide to shop at their local businesses for products since they won't be getting items tax-free. That's not a bad thing. Those businesses and their employees are parts of the community, doing their parts to boost the local economy.

And others, like me, will still shop online despite the added taxes because it's more convenient.

Did you shop online today? Did you pay sales tax on your purchase? If not, will you pay your state's use tax?

You also might find these items of interest:

• State tax collectors ramp up enforcement
• Drop a dime on Amazon
• Cyber Monday 2011 is still tax-free...for now