Currently retailers selling online only collect a sales tax if they have a physical location within a state and are selling merchandise to a resident of that state. This means that if you live in Massachusetts and you make a purchase from an online company that has no physical presence in Massachusetts (such as an actual store, a warehouse, or a headquarters) than the store is not required to collect sales tax from you. BUT this does not mean that you are not required to pay a tax. According to marketplacefairness.org, “Consumers are required under existing state laws to pay sales and use taxes on the goods they purchase, but online sellers simply are not required to collect the tax in the same way that local businesses do”. This means that as a consumer you are required to claim the “use tax” yourself. Meaning every April when it comes time to submit your state tax return you are supposed to tally up all of the online purchases you made and apply your state sales tax to the total and pay that amount with your taxes. Haven’t heard of this? Most people haven’t and most don’t include this on their tax returns. Making it almost impossible for the government to enforce this tax. Hence why people believe the Marketplace Fairness Act would be beneficial.
As you have probably figured out this new law isn’t a new tax. You were supposed to be paying the tax all along, just in a different form. If the law passes the difference is that now retailers will be required to collect sales tax from you regardless if they have a physical presence in your state or not. Obviously if your state doesn’t charge sales tax, this new law does not affect you.
There are a few exceptions to this law that apply to small businesses:
- Any business that does less than $1,000,000 of remote sales in the United States is not required to collect sales tax.
- Any business that does less than $100,000 of remote sales in a given state is not required to collect sales tax.
“remote” refers to not having a physical presence in said state
Therefore if this law passes you will be affected by it when purchasing items from big online marketplaces such as Amazon, Best buy etc… and may not necessarily be affected when buying from a local mom and pop or other small business.
Will paying a sales tax change your online shopping habits?