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Senate passes online sales tax bill

The United States Senate recently voted to approve the Marketplace Fairness Act, a proposed federal law that would allow states to compel online and catalog retailers (called “remote sellers”) to collect sales tax on purchases made by people in the state.

However, this doesn’t mean you have to start paying sales tax on those online purchases immediately. The Marketplace Fairness Act still needs to pass the House of Representatives, which may be tough.

In a recent post we talked about use tax in California, which allows the state to collect tax on items bought online and shipped into the state. Consumers may purchase big-ticket items like computers and other electronics from sites like Amazon to avoid paying sales tax. Use tax can act as a sort of replacement for that sales tax lost by the state.

The difference between use tax and the tax required under the Marketplace Fairness Act comes in its collection. Currently sales and use tax laws in 45 states and the District of Columbia require consumers to self-report their purchases and pay the appropriate tax with their annual return. However, the pending legislation would require merchants to collect that tax at the time of purchase.

As you can imagine, many people may not find it worth their time and expense to add up their internet purchases, determine the appropriate amount of tax and write the state a check every year. However, failure to comply with state tax laws could result in a dreaded IRS audit or, worse, tax litigation or criminal action.

Source: Forbes, “Senate Passes Online Sales Tax 69-27 But You Can Avoid It For Now,’ Robert Wood, May 7, 2013

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