Amnesty Program Leads to Online Sales Tax Collection

Pressure by cash strapped states with increased state tax collecting authority has resulted in an amnesty program for some major retailers turning a new chapter in the development of the Internet. On February 3, 2003, some online retailers began voluntarily charging sales tax for online purchases, regardless of the state of residence of the customer. Retailers that are part of the new plan are apparently being given an amnesty of sorts from previous taxes that might have been levied on past sales.

Thirty-eight states have entered into an agreement to offer an amnesty to online retailers who have not collected sales tax to date. Arizona, California and South Carolina are not parties to the deal, and four other states have not yet signed on.

The identity of all of the retailers that are part of the program has been kept secret, primarily to avoid targeting those retailers to cough up their online sales taxes in states that have not signed on to the Internet tax agreement. However, the online divisions of national retailers including Wal-Mart Stores Inc., Target Corp. and Toys R Us Inc., Marshall Fields and Mervyn’s have posted new information on their Web sites regarding collection of sales tax for buyers living in areas where sales taxes are levied. Tax rates will vary depending on the jurisdiction the customer lives in.

Some stores are proceeding with this new policy in order to more aggressively align the policies of online store with the physical store –in promotions, advertising, and merchandise returns.

Previously, online sites collected sales tax only from customers who resided in locations where the online company held a physical presence. Many national retailers incorporated their online stores separately in part so they could avoid the need to collect sales taxes.

Smaller retailers complain that the tax burden to report and collect taxes from the many jurisdictions around the country is only possible with sophisticated information technology departments that organizations like Wal-Mart would have available to it. "Somebody who's running an Internet retail operation out of a server in their basement isn't going to be able to handle" accounting for numerous sales tax rates, said Mark Nebergall, president of the Software Finance and Tax Executives Council. "The beauty of the Web is it gives small retailers access to global and national markets. Loading them up with tax administrative burdens like this would crush them."

The amnesty project is a victory for the Streamlines Sales Tax Project. In November, 2002, over 30 financially strapped states and the District of Columbia entered into an agreement to simplify their tax laws to allow for the ability to collect sales tax on online purchases.

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