Sales
On The Internet
A
company which is
selling goods over the Internet and has a presence
in the state of delivery, ie has established nexus
in that state, will be required to register to
collect sales tax on all taxable goods.
However,
in many, perhaps most cases, an Internet sale
will not involve nexus in the receiving state,
and the Supreme Court has prevented states from
imposing sales tax on out-of-state supplies in
that situation. Arguably, use tax provisions should
then step in and impose tax on the sale, but the
reality is that the operation of such consumption
taxes depends heavily on the ability of the taxing
authority to find traces or records of transactions,
thus motivating taxpayers to comply with the law
because of the near-certainty that they will be
found out if they don't.
It seems obvious that once an individual consumer
can buy and receive digital but taxable goods
or services through the Internet, then it is going
to be hard to collect tax if the seller is outside
the tax jurisdiction. The taxing authority won't
know and can't know about the transaction unless
the consumer chooses to tell them, which history
says is not likely!
The
supply of goods ordered and paid for from a distant
seller and requiring physical delivery within
the taxing jurisdiction is a simpler case, because
a cross-border transit is necessary. The supply
is taxable only when there is nexus, and even
then enforcement can be patchy; but Internet sales
of this type are no different from existing mail-order
catalogue sales.
In
reality, for traders within the US who obey local
tax laws, the Internet has been an almost tax-free
zone because of the moratorium on Internet access
taxes and the ban on taxation of inter-state supplies
of products and services.
For
many states, on-line cigarette sales are particularly
hurtful for the tax-base. States like New York
(tax of $3.00 a pack at the time of writing) and
New Jersey ($2.40 a pack) find tax revenues dropping
dramatically as smokers buy from on-line stores.
Cigarettes
are a special case, because the 1949 The Jenkins
Act requires vendors that ship cigarettes to another
state to provide customers' names and addresses
to taxing agencies in the receiving state. Most
Internet cigarette vendors do not comply with
the Jenkins Act, but some do, and their customers
are receiving substantial tax claims from their
home states - up to thousands of dollars in some
cases. New Jersey, Pennsylvania, Ohio and New
York City are among the municipalities that are
billing residents.
The
response of the states to this situation was to
try to assert nexus in a wider range of situations;
but they have not been very successful in this
endeavour. They have also banded together to develop
the Streamlined Sales Tax Program,
(SSTP or SSUTA) which will regularize Internet
sales taxation and may lead Congress to loosen
the rules against inter-state sales taxation.
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