Internet Sales Taxes

The effort to collect sales taxes on Internet transactions gained momentum recently. Last week the New York legislature passed a bill that would require Internet retailers doing more than $10,000 a year in business to collect and remit taxes on sales to customers in New York. This article in the New York Times addresses the issue, noting that since 2003 New York’s state income tax form has contained Line 59, on which taxpayers are required to list unpaid sales taxes on Internet sales from non-New York retailers. In 2006 five percent of New York taxpayers included information on Line 59, with an average tax owed of $95.36. I expect that most taxpayers are unaware that they are required to pay in-state use taxes on out-of-state purchases that were untaxed at the time of purchase because, for instance, the taxpayer had the item shipped from the store to their home. The requirement to pay use taxes has been around for some time–since the 1960s in New York, via Line 56 on older tax forms–but the only enforcement I recall involved disgraced Tyco CEO Dennis Kozlowski’s evasion of sales tax on a multi-million dollar purchase of paintings. Kozlowski purchased the paintings in London and had them shipped to his home in New York via Tyco’s headquarters in sales-tax-free New Hampshire, for the purpose of avoiding New York sales tax. New York indicted Kozlowski for tax evasion but ultimately dismissed the charges. New York expects to collect about $50 million a year from the new law.


8 thoughts on “Internet Sales Taxes”

  1. I think this is definitely an ongoing problem that seems to finally be getting much needed attention. States like California that do not participate in the Streamlined Sales Tax initiative pass up the opportunity to increase their revenue via online sales tax revenue. States are losing millions of dollars in revenue due to eCommerce transactions with the failure of people to pay use taxes. I feel it may also provide a slight competitive advantage for online companies due to the fact that some consumers are more inclined to purchase items that they do not have to pay tax on. More states should adopt a requirement similar to the one in place in New York in order to keep the regulation of use tax in check.

  2. How would they know what the state resident purchased from out of state for use in the resident’s home state?

  3. I think that all retailers and especially out of state retailers must inform the online buyers if they are required to pay tax to the state for their purchases. Otherwise there is no way that customers know for what items they must pay tax. So, it might seem like they are trying to evade taxes when they are just unaware. In such cases, I feel that the out of state retailers should be held respinsible for not informing. However, this will certainly adversely affect the business of some online retailers. If this law comes into effect not so many customers who are attracted to purchase online now (as they save on taxes) will buy online then.In such a case,the government should provide the retailers with some sort of incentive to collect, like a reduction in the tax rates perhaps, so that they are not so deeply impacted by the law.

  4. The New York law places the burden on Internet retailers to identify NY customers at the time of sale (which is easily via Zip codes), collect the tax upon the sale, and remit the tax collected to the state. This would eliminate the problem of collecting use taxes from those New York residents who owe it but fail, through inadvertence or design, to pay.

  5. I understand that the government wants to collect as much money as it can; however, being a first mover could potentially harm sales. I know when I shop online and especially on eBay, it is very easy to sort items by price and always pick the cheapest overall price (product cost + shipping + sales tax). In most cases, unless the NY seller eats the cost of taxes, it will always appear last on an ascending list based on prices.

    Hopefully the Streamlined Sales Tax that is being adopted by more and more states will get more states on board with charging sales taxes.

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