Poll results about online sales tax collection expose myths vs. facts

Two recent polls on online sales tax highlight the fact that a lot of misinformation is circulating about online sales tax collection.

The first poll, from the International Council of Shopping Centers, found that two-thirds of U.S. consumers in states with sales tax are unaware that sales tax is due on online purchases:

Sixty-four percent of U.S. consumers in states that require their residents to pay a sales tax on purchases either do not know or do not believe they are required to pay sales tax on Internet purchases if not collected by the vendor, according to a new survey by the International Council of Shopping Centers (ICSC). . . .

Consumer compliance with the use tax payment on online purchases is generally low. A key reason for this, as the ICSC study found, is that consumers expect the vendor to collect sales taxes if they owe them. 

The poll results include several other fascinating findings—among them, that “93% of consumers would continue to shop online if taxes were collected at the point of purchase” and “more than 50% of respondents cited ‘price’ as the most important factor when making a purchase”—and we recommend you review the complete results.

The second poll actually, and inadvertently, demonstrates the results of the first poll.

Conducted July 6-17, 2011, the latest USC Dornsife/Los Angeles Times Poll shows 46 percent of voters favoring the online sales tax as a revenue source to help balance the budget and pay for state services. Forty-nine percent opposed the measure, which would raise taxes and could hurt local businesses who sell products through online retailers such as Amazon.com.

“At this point, Californians are evenly divided on whether online purchases should be taxed. This could be one of the most expensive campaigns in California history, and neither side starts with a clear advantage,” said Dan Schnur, director of the USC Dornsife/Los Angeles Times Poll and director of the Unruh Institute of Politics at USC.

The problem is, of course, that online purchases are already subject to sales tax, and always have been. By asking respondents if they support taxing online sales, the pollsters completely missed the point. The California measure they wanted to ask voters about would not, despite what they say, raise taxes. It would simply define which online retailers must collect the existing California sales tax on online purchases. We would have been very interested to see the results of a poll on the actual legislation; it’s too bad that the pollsters got this one so wrong.

But it does highlight the fact that, as the first poll suggests, there is a lot of misinformation out there about online sales tax collection. So we thought it would be helpful to address some of the most common myths about online sales tax collection and uncover what the facts really are.

States where internet purchases are taxableMyth: By requiring online retailers to collect sales tax, the government is raising taxes.

Fact: Sales tax is already due on online purchases, whether or not the retailer collects it. This is true in all 45 states with sales and use tax laws—most of which were enacted more than 50 years ago. As we have said before, this is not a new tax.

Right now, a consumer who buys online without paying sales tax is required to calculate the sales tax due—which is called “use tax” at this point—and remit that tax directly to the state with their tax returns. However, most consumers are unaware of this requirement, and so most sales tax on online purchases goes unreported. It’s nearly impossible for states to ensure that consumers remit the correct use tax, so instead, several states have tried to get online retailers to collect sales tax, just as bricks-and-mortar retailers do. But these attempts are often perceived as tax increases, when in fact they’re nothing of the sort. Whether you the consumer send the sales tax directly to the state or the retailer collects the sales tax when you make your purchase, sales tax is still due on online purchases.

We can’t say this enough: States aren’t implementing a new tax or raising taxes on online purchases.

Myth: Calculating and collecting sales tax for every tax jurisdiction nationwide would be too difficult for online retailers.

Fact: Today’s technology makes it easy for a retailer of any size to calculate and collect sales tax for every tax jurisdiction in the nation. It’s no more difficult than calculating shipping rates in real time, something nearly every online retailer does.

We can’t emphasize this enough: Calculating and collecting sales tax is no longer an administrative burden, not even for the smallest sole proprietorship. Inexpensive, even free, software and services (such as TaxCloud) are available to make this easy for any retailer. In fact, most small online retailers already use shopping cart services that are looking at the best way of providing sales tax calculation for their merchants. We promise, online retailers are not going to suffer because they have to collect sales tax.

Myth: It is only fair that internet companies are not obligated to collect sales tax. After all, brick-and-mortar retailers don’t have to charge for shipping.  

Fact: Shipping costs are factored into the business model of internet retailers—if you want to sell something without the expense of maintaining a local store, you have to figure out a way to get the goods to the consumer. Online retailers’ current exemption from collecting sales tax is an artificial advantage, based on the inefficiencies of use tax collection (consumers get a lower price if they forget to pay the use tax). Sales tax was never intended to offset shipping costs.

Myth: Local retailers cannot claim that this is an issue of fairness—a bricks-and-mortar store is free to sell online and avoid collecting sales tax too.  

Fact:  Requiring local retailers to collect sales tax when online retailers don’t have to is unfair, plain and simple—regardless of whether a local retailer also has an online store. To take this argument to its logical conclusion, in order to make things fair everyone should just sell online—which would mean no local stores at all. Envision your community without a bookstore, coffeehouse, or clothing store; that’s not what anyone wants.

11 Responses to Poll results about online sales tax collection expose myths vs. facts

  1. […] Taxpayers Union) or repeated one of the common mischaracterizations of the bill that we recently blogged about (Americans for Tax Reform, NetChoice). Once again: The bill does not create a new tax or raise […]

  2. […] the role of nexus) to the Internet Tax Freedom Act. So consider this an addition to our earlier list of mischaracterizations about online sales tax: The Internet Tax Freedom Act does not ban sales tax on online […]

  3. […] have been, is one of the most common misconceptions about online sales tax. For others, see our post on the common myths and facts about online sales […]

  4. […] date.  The article also addresses some of the misconceptions about the federal bill.  Also this blog post by FedTax.net discusses some recent polling on the […]

  5. […] date.  The article also addresses some of the misconceptions about the federal bill.  Also this blog post by FedTax.net discusses some recent polling on the […]

  6. […] And then, the main objection that online retailers have to the Main Street Fairness Act—that collecting sales tax for multiple states is too difficult—simply isn’t true, not any more. Technology has reached the point that collecting sales tax is no more difficult for online retailers than calculating shipping rates, something every online retailer does. (More information on myths and facts about the Main Street Fairness Act is available here.) […]

  7. […] more myths and facts about online sales tax collection, see our earlier post.) Share […]

  8. Anonymous says:

    Sales taxes are just another way to pad government coffers and cover up waste and inefficiency. Rather than actually doing their job effectively, when a budget grisis looms, the automatic response is to increase taxes or create new taxes much like the airline industry and banking industry did with their add on fees to maintain their profit margins and their ridiculous bonuses to executives that got them into the mess in the first place!

    • FedTax says:

      This debate is not about whether sales tax is due, it is in 45 states.

      Rather, this debate is about who should be required to collect the taxes due. If you are unhappy about sales tax, that is a matter you should take up with your state legislature. Sales tax laws were adopted by most states soon after the great depression (yes, the one in the 1930s) to provide a more stable and responsible source of tax revenue than property or income tax. Where sales tax tends to be regressive, most states also adopted exemptions to ensure essential goods and services are exempt.

      As you know, most states are in deep financial crisis and have already been reducing spending significantly. Wouldn’t it make sense for Congress to allow states to decide if they want to require remote retailers to collect their citizen’s-approved sales tax? Furthermore, wouldn’t it be prudent to restrict this authority to Only those states which agree to modernize and simplify their tax code to ensure remote retailers face no undue hardship in achieving compliance and collection? Your answer to both of these questions should be yes, and fortunately that is exactly how the pending Marketplace Fairness Act works.

  9. Mike says:

    Whats next? Check points and vehicle searches at all state,county and municipal borders?Would not want anyone getting away without paying their tax now would we?
    This country is turning into a bigger joke every day

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