An article in Business Insider on online sales tax collection contains so much misinformation—including a truly ridiculous assertion, addressed at the end of this post—that we had to respond.
– On the fact that currently, only retailers with a physical presence in a state—an office, warehouse, or even salesperson—are required to collect sales tax for that state, the article says that makes sense:
Taxes are meant to fund government expenses, but if an individual or corporation cannot receive any benefit from that government expense, then that individual or corporation should not be taxed for that expense.
But of course, no one is suggesting that the retailer be taxed—only that the retailer collect sales tax, which is indeed paid by those who benefit from what sales tax pays for. Sales tax funds community services and initiatives such as schools, police, parks, libraries, and more. When an online retailer collects sales tax, that tax is remitted back to the state where the consumer—who, again, paid the tax—is located, and it funds services in the consumer’s community.
Yes, sales tax should be paid only by those who benefit from the services sales tax funds. And that’s exactly what happens when online retailers collect sales tax.
– On states’ adopting legislation that requires online retailers to collect sales tax, the article simply gets its facts wrong:
States need this money and are now finding creative ways to structure their tax codes to ultimately require Internet transactions to include a state’s sales tax. So far, 11 states have enacted some legislation to tax these online retailers, mainly targeting the big fish.
Not at all. First, online transactions have always been subject to sales tax. No state with sales tax needs to alter its tax codes, creatively or not, to make online transactions subject to sales tax—they already are. Second, no state is enacting legislation to “tax these online retailers, mainly targeting the big fish.” Again, states that are implementing new legislation are asking online retailers to collect sales tax, not pay it. It’s an important distinction.
– On internet transactions in general, the article gets truly ludicrous:
In theory, the Internet is a separate location and not part of any state or country. Transactions that occur in the Internet cannot be claimed to have occurred in a state or country.
This is simply absurd, even “in theory.” By this logic, there would be no way to stop internet fraud or any cybercrimes—if the event did not occur in any state or country, it wouldn’t be subject to any laws. Although this may upset the pirates in the audience, the suggestion that transactions on the internet are not subject to state or national law is simply ridiculous.
Nothing on the internet happens “nowhere.”
Internet shoppers (and retailers) are located in a physical jurisdiction and are subject to laws of that jurisdiction (including city, county, state, and federal laws). Anti-money laundering and anti-terrorism laws (among others) in the US and around the world all agree on this matter.
Yes, even if you buy a black pearl online, it is still subject to sales tax. However, if you buy it from Blue Nile or Amazon, they probably will not collect the sales tax due—so don’t forget to report your purchase to your state and remit the sales tax.