It’s looking increasingly likely that a change in federal law will require online retailers to collect sales taxes wherever their products are sold.
Should you care?
If you’re a business with a lot of online sales, you probably have an opinion on this.
Generally, large online retailers support the proposed law if they are already required to collect sales taxes (like Walmart), or soon expect to be (like Amazon).
Companies must collect sales tax if they have a legal “nexus” (such as a store) in a given state.
Those that don’t collect sales taxes now typically oppose the idea. Why wouldn’t they?
And some interest groups, from Grover Norquist on the right to Occupy Wall Street on the left, oppose taxing Internet sales either because it’s a tax or because sales taxes are regressive.
But what if you’re a South Carolina resident who buys stuff online?
If you live in the Palmetto State, a nationwide law requiring the collection of existing sales taxes for online purchases shouldn’t harm you financially.
I say “shouldn’t” because you’re already required to declare all your untaxed online purchases on your annual state income tax form and pay up.
Yes, you are.
Online purchases are already taxable in South Carolina. It’s just a question of who keeps the records and collects the money.
Realistically, and this is clear from tax revenues, many people either don’t know or don’t care about that regulation. If the online seller doesn’t collect the tax, individuals often don’t pay it, and the state doesn’t seem to bother people who ignore the rules.
Here’s what’s expected to happen if Congress passes the Marketplace Fairness Act.
Some small businesses still will not have to collect sales tax on Internet sales. Congress has been debating whether the threshold should be $1 million in annual online sales, or more like $10 million, as eBay has advocated.
Well-known online sellers would be covered by the legislation due to their size. For South Carolina residents, that means not having a legal requirement to keep track of your untaxed online purchases and then pay up at income tax time.
Supporters of the legislation have been talking up the fairness angle because here’s how it works now in South Carolina: If you buy a book from Amazon.com, the company will not collect sales tax, and you’ll be expected to declare it on your income tax form. But if you buy the same book from barnesandnoble.com, that company is required to collect the tax because Barnes & Noble has retail locations in South Carolina.
Likewise, if you buy clothing online from Lands’ End, the retailer will collect sales tax, but if you buy something similar from L.L. Bean, it won’t. That’s because Lands’ End products are sold at certain Sears locations in South Carolina.
So there’s the fairness issue in a nutshell. Why should an online retailer that also has storefront locations in the state — companies that pay property taxes and employ local residents who, in turn, pay more taxes — be at a disadvantage to a direct competitor that’s not required to collect sales tax?
Opponents say having to keep track of state and local sales tax rates, as well as things like tax-free holidays, and collect the tax money, and turn it in to state and local governments, would be burdensome and expensive. Of course, their competitors who are required to do just that want a level playing field.
But whatever your opinion is of the Marketplace Fairness Act, the fact is, in South Carolina, you’re already required to pay sales tax on the things you buy online.
Reach David Slade at 937-5552 or Twitter @DSladeNews.