Consumers' Responsibility to Pay Sales or Use Taxes
Consumers who live in a state that collects sales tax are technically required to pay the tax to the state even when an Internet retailer doesn't collect it. When consumers are required to pay tax directly to the state, it is referred to as "use" tax rather than sales tax.
The only difference between sales and use tax is which person -- the seller or the buyer -- pays the state. Theoretically, use taxes are just a backup plan to make sure that the state collects revenue on every taxable item that is purchased within its borders. But because collecting use tax on smaller purchases is so much trouble, states have traditionally attempted to collect a use tax only on big-ticket items that require licenses, such as cars and boats.
That, however, may be changing. Many states have reevaluated their attitude towards collecting use taxes. For example, New York state has added a line to income tax returns requiring all residents to calculate how much they should pay on Internet, mail order, or out-of-state purchases. California has begun a campaign to educate taxpayers on what's owed, as well. Watch for more states to step up use tax collections.
The Internet's Future as a Tax-Free Zone
Will Internet purchases remain free from sales-tax? We'll find out in coming years as Congress and state legislatures wrestle with this issue. Naturally, there is a great deal of opposition to the current approach, and state governments and brick-and-mortar retailers are seeking legislation to overturn the 1992 Supreme Court ruling. A look at the numbers explains why -- sales tax revenues currently amount to about $150 billion annually and make up approximately one-third of all state revenues. These taxes pay for everything from schools and police to roads, parks, and other state services. California alone estimates losses of over a billion dollars per year in sales tax revenues.
States that don't have a personal income tax, like Texas, are even more dependent on sales tax revenue. (The five states that don't have a sales tax -- Alaska, Delaware, Montana, New Hampshire, and Oregon -- aren't hurt at all.)
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