It is difficult these days to read an article about sales tax without coming across issues with online companies such as Amazon. For those of you that do not spend most of your day hunting down interesting sales tax articles, please just take my word for it. In fact, before Congress right now is an attempt to nationalize sales tax collection by passing a law known as the Marketplace Fairness Act. This law would essentially cause most online retailers, like Amazon, to collect tax in every jurisdiction to which they sell. Not surprisingly, and despite the literally thousands of articles discussing the MFA and online sales tax collection, most consumers and many commentators still are not understanding how a sales tax works.
By way of background and for review for many of you, a sales and use tax work complimentary to each other. If a company has nexus, a connection, with a state, then it is supposed to charge, collect, and remit a sales tax on sales made into a particular jurisdiction. Conversely, if a consumer uses an item in which tax has not been paid, then the consumer owes a use tax to the state on that item. In the online marketplace, that means that if you buy an item online and the online seller does not charge tax, then it is your responsibility as the consumer to file a use tax return and pay the tax directly to the state. However, I regularly bring up this concept during my speaking engagements in Florida, and my audience just laughs when I ask them who has filed their use tax return (DR-15 MO) for the clothes and shoes they bought on Amazon over the last year.
In my recent readings, I came across a Forbes article entitled 3 Ways to Still Avoid Sales Tax Online by Robert Wood. In his article, Mr. Wood points out that aside from the states that do not have a sales tax (Alaska, Delaware, Montana, New Hampshire, and Oregon if you are interested), online shoppers have been charged sales tax in more and more states each year. Each year states try to enlarge their nexus statutes to require more online retailers to collect. In addition, Amazon is collecting in at least 20 states.
To Mr. Wood’s credit he does understand use tax, sales tax’s evil counterpart. However, I found it comical that he wrote about ways to avoid tax by shopping online. He suggests in order to avoid the tax, start by reading the website to see which states the online seller collects and remits in. Second, Mr. Wood suggests to buy from smaller merchants, who likely do not collect tax. Last, he suggests buying from the Amazon merchant directly which would bypass the tax. While his article is well reasoned and thought out, it points out a real problem in this country. How are physical stores supposed to compete with online retailers who do not charge tax? Further, it points out the overall attitude of consumers. Most consumers take the position that if the online retailer does not charge tax then they don’t owe it. Most customers are savvy enough to know, unless it is a large purchase, the state will only go after vendors for sales and use tax compliance and will not come banging on their door for a measly few hundred dollars on several small purchases. This is exactly the problem national legislation is intended to fix. However, until we have a solution, articles educating consumers on “tax savings” will continue to surface.
About the author: Mr. Donnini is a multi-state sales and use tax attorney and an associate in the law Moffa, Gainor, & Sutton, based in Fort Lauderdale, Florida. Mr. Donnini’s primary practice is multi-state sales and use tax as well as state corporate income tax controversy. Mr. Donnini also practices in the areas of federal tax controversy, federal estate planning, Florida probate, and all other state taxes including communication service tax, cigarette & tobacco tax, motor fuel tax, and Native American taxation. Mr. Donnini received his LL.M. in Taxation at NYU. If you have any questions please do not hesitate to contact him via email JerryDonnini@Floridasalestax.com or phone at 954-642-9390. Please also visit his other sales tax blog, facebook, and Twitter