Are You Prepared to Pay Sales Tax on Your Online Purchases?

May 9, 2013 | By: TaxCure Staff

marketplace fairness act and taxesOne of the reasons that many people make purchases online is the lack of sales tax. Technically, consumers are supposed to declare their online purchases (and purchases made out of state) on their state tax returns and then pay at the sales tax rate. This is known as the use tax.

Practically, though, very, very few taxpayers declare their out-of-state and online purchases in this manner. Most taxpayers probably aren’t even aware that this is a requirement.

States have been frustrated by the growth in online commerce since it means falling sales tax revenues. The way federal law is written, a retailer must have a physical presence in a state in order for the state to enforce the collection of sales tax. Right now the responsibility for making sure sales taxes is placed squarely on the shoulders of the taxpayer.

A law currently under consideration by Congress could change that. The Marketplace Fairness Act recently passed the Senate with bipartisan support and, as of this writing, is in the House where it will be debated and voted on soon.

How Could the Marketplace Fairness Act Affect You?

If the law takes effect, it would mean that states could require retailers to collect sales tax on behalf of a state looking to enforce its sales tax laws — even without a physical presence in the state. This means that when you are checking out online, a retailer would calculate your state’s sales tax and add it to the purchase price. No more tax savings just because you are making an online purchase.

Other than that, there wouldn’t be a lot of changes that consumers would have to worry about. The sales tax would be figured automatically — much like shipping charges are automatically added to items bought over the Internet.

How Could Small Business Be Affected?

Small business owners are concerned about the bill, though, since it could mean an expensive process of coming into compliance. The Marketplace Fairness Act attempts to ease concerns by only requiring retailers that earn more than $1 million to be subject to the law. However, many small and medium-sized business owners are still concerned about the impacts of the law.

As a result of concerns about businesses that might still have trouble adhering to the rules, eBay is encouraging lawmakers to raise the cap on exempted businesses to $10 million.

Many businesses are concerned because the Marketplace Fairness Act would allow all tax jurisdictions to enforce their rates. To many businesses, this could be an onerous task, since there are more than 9,000 tax jurisdictions in the United States once you figure city and county sales taxes on top of state sales taxes.

What’s Next?

If you have an opinion about the Marketplace Fairness Act, you can contact your Representative. It’s too late to contact your Senator, but it’s still possible to email, call, or write to your representatives in the House to let them know how you feel, one way or the other. You can find information on reaching the lawmakers that represent you at