To Tax Or Not To Tax

A Note From Tina Kersen, AccountingWEB Contributor

The other day I hopped online to order some Ray Ban sunglasses. I was pleasantly surprised when I signed onto Shades.com to find the exact pair of shades I admired in the mall for exactly half the price. Prior to ordering at the virtual "check out," I figured my total savings

· $60.00 ($120 retail vs. $60.00 online)
· $9.90 (taxes I would've paid on the retail price - lucky me, I'm not a resident of Massachussetts)
· $4.95 (shades.com's typical S&H charge was waived as a "bonus")
· $74.85 - exactly $14.85 more than I actually paid for the sunglasses.

I couldn't help but be happy about my tax savings. Apparently I'm not the only one who has noticed that I skipped out on paying taxes because I conveniently ordered out of state. Next week a Federal Advisory Commission on Electronic Commerce will meet to try to figure out what to do about online tax issues.

Some of the questions facing online sellers are:

· Will a Federal tax be applied to all products sold on the Internet?
· Will states try to impose a sales tax on products sold from other states' online companies?
· Will the temporary suspension of new Internet taxes be lifted when it expires (18 months from now) or will it be extended?

Don't worry. There are plenty of taxes to be found on the Internet. As accountants, you understand that sales tax applies to sales made in the state where a merchant has a "physical presence." The Internet has thrown a kink in the system, however. If the merchant has a physical store in the state from which the customer is ordering, sales taxes are in order. But what about virtual retailers like Amazon.com and Etoys? That's right, they only have to collect tax in the states where they have an actual presence.

The subject has been batted around for some time now and it doesn't look like there will be any tax answer relief anytime soon. Stay tuned…

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