States Looking at Ways to Tax Internet Sales

Nineteen states are getting serious about collecting sales tax on the $52 billion Americans spend annually shopping online. But guess what? It’s going to be on the honor system for now, at least until states can find a way to collect the taxes.

The Supreme Court has ruled that catalog companies don’t have to charge sales tax, arguing it is too complicated for companies to compute the different tax rate for each state. With states increasingly more strapped for cash, you can bet they are going to find a way to tap into what could be $62 million each in new annual sales tax.

"It's a lot of money that's not being collected and states are starting to do what they can to collect it," Alysoun McLaughlin of the National Association of Counties, told CNN/Money.

Many New York state residents, and their accountants, are unhappy about a new line on state tax forms to record the amount of sales tax owed from online, catalog or out-of-state purchases.

The new Line 56, "sales or use tax," was created by the state legislature’s 2003-2004 budget so the state can collect an estimated $25 million in unpaid taxes, Newsday reported earlier this month.

Congress addressed part of the issue in 1998 with the "Internet Tax Freedom Act," which addresses taxes on Internet access, not purchases. Currently Congress is considering extending the ban on access taxes.

Until the states can come up with a way to efficiently collect the taxes, taxpayers are expected to tell their states how much they spent shopping online and send in a check for the tax. Or, they can just say they spent nothing.

"Yes, a few people won't pay it, but you'll get some," said McLaughlin.

No one expects sales tax to hurt the Internet sales business. "We've found time and time again that sales taxes did not have a significant impact (on online sales decisions)," Ken Cassar, director of strategic analysis with Nielsen Netratings, told CNN/Money. Things like brand and the base sales price are bigger concerns, Cassar said. "Sales tax is a smaller issue for consumers."


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