Most of us are tax cheats. Not the lying-about-our-income kind but the not-paying-online-sales-tax kind. When you spend money with an online retailer you are supposed to pay what’s called a use tax for most items. Consider it a sales tax but instead of the retailer adding it on to your receipt, you are responsible for doing it come tax time.
In the ultra-competitive world of retailing every advantage counts. If an online retailer does not have an actual store in the state, the website does not have to tack on the state sales tax at check out. Convenience, free shipping and no sales tax give online sellers like Amazon.com a leg up on its brick and mortar colleagues. Just look at the struggles of Barnes & Noble, Best Buy and J.C. Penney. While the requirement of those stores to charge their online customers sales tax isn’t the sole cause of their difficulties, the sales tax gap still hurts.
It also hurts state finances. State governments are eager to grab revenue where they can find it. The failure of online shoppers to pay Internet buying taxes adds up to $23 billion less for state budgets according to the National Conference of State Legislatures.
In the coming week, the U.S. Senate could vote on a bill giving states the authority to collect sales taxes from all online purchases. Since shoppers already are supposed to pay this tax, supporters refuse to call it a tax hike. But with so few paying what’s owed, that’s exactly what it will feel like for most households.
Tom Hudson is a financial journalist based in Miami. He is the former co-anchor and managing editor of Nightly Business Report on public television. Follow him on Twitter @HudsonsView.