Internet Sales Tax: New Legislation Pending

Find out what this new law would mean for online sellers.

The U.S. Senate has passed a new Internet sales tax law. Whether it will also pass the House of Representatives and become law is another matter, however. But, if the bill is enacted, what will it change? Maybe not as much as you'd think.

First of all, the law does not impose any new sales taxes on sales of goods and merchandise over the Internet. These are already subject to taxation in the 45 states that have sales taxes. Nor does the bill increase the sales tax rates imposed by the states. In fact, the bill bars states from using the law to try to impose new sales taxes on products or services that are not now taxed.

What the bill does do is enable states for the first time to require businesses that are located out-of-state to collect and pay sales taxes on online sales they make to residents within a state. For example, an Internet seller located in Wisconsin would have to collect California sales taxes on sales made to California residents and pay them to the state of California.

This is not a tax increase because you are already legally required to pay state use taxes on your purchases of goods and merchandise over the Internet. You are supposed to add these taxes to your state income tax return. In reality, almost no one actually does this and few or no states enforce the law. So, what the new Internet sales tax bill does is force out-of-state Internet sellers to collect and pay these taxes, rather than relying on voluntary compliance by state residents.

Does this mean you'll have to start collecting sales taxes on all the out-of-state sales you make on eBay? No. The law does not apply to online sellers with annual out-of-state sales of $1 million or less.

April 2013

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