Taxes on Internet Sales

Technically, the purchase of goods sold over the internet are taxable if the corporations the products are purchased from operate within the same state. Such sales tax is not prohibited by the Internet Tax Freedom Act that was extended by George W. Bush in November of 2007 for 7 years. Since companies are able to set up out of state operations to qualify them for non taxation privileges, these companies do not have to pay taxes on sales to buyers within other states.

While states may not be required to collect taxes on internet sales, consumers may still be responsible for paying and reporting such taxes in the event of same state/business purchases. Enforcement of this law has not taken a high priority in recent years therefore many consumers are either unaware or negligent of such tax responsibilities. Some companies voluntarily collect internet sales taxes however others don't due to lack of legal restrictions requiring them to do so.

The Internet tax freedom act

The Internet Tax Freedom Act includes the internet tax non-discrimination act. Specifically, this act bans the taxation of internet service but not selling via the internet. States that wish to collect sales tax from sales within their state may request the collection of sales tax however sellers are not currently required to collect the sales tax themselves. This may change in the future but as of the date of this article, no such legality exists. If purchases are made from an internet site that is located outside of one's state, only that state may collect taxes on sales.

Supreme court prohibition of Internet sales tax

A 1992 Supreme court case entitled "Quill v. North Dakota", essentially outlawed the charging of taxes buy corporations selling goods to buyers in other states. Moreover, if a company has no presence within the state of sale, the Supreme Court decision maintains that the state to which goods are shipped cannot tax the corporation making the sale. While this case pertained to a mail order business, the principal of inter-sales through businesses not operating in the state of delivery applies to e-commerce as well. Consequently, the charging of sales tax is not applicable for purchases made online from such companies.

The stream lines sales tax project and internet sales tax

In light of complex, outdated and new developments in e-commerce, a legislative movement has begun to stream line sales tax and includes the potential for internet sales in that effort. The stream line sales tax project is an interstate initiative that simplifies and standardizes taxation collection. The result of a more standardized, and reduced taxation system between states could then allow the federal government to pass tax legislation that enables interstate taxation that includes internet sales tax.

Internet sales tax on sales from outside the United States

Depending on the tax treaties with a foreign country, tax may or may not be required for sales of products purchased over the internet. However, ambiguity exists regarding location of internet operations and their jurisdiction of operation. For example, a company that is required to charge tax on sales made for delivery outside of the United States may have an offshore subsidiary through which it does business. If that offshore jurisdiction is not subject to internet sales tax, the charging of tax on international sales tax may be disputed.

Summary of Internet sales tax

As it stands at the moment, internet sales tax is not largely enforced due to the nature of internet commerce i.e. since it is often without state borders, compliance with State laws and tax policy is not always required in addition to a lack of laws requiring businesses within a state to collect sales taxes from internet purchases. The internet is growing industry and the potential loss of sales taxes increases each year which gives states all the more incentive to push for a more concrete internet sales tax.

The Stream lined sales tax project is one such effort and aims to expedite and abridge the tax collection process thereby justifying collection of internet taxes between states i.e. differences between states signing onto the agreement may create a unity of state taxation making federal legislation on the matter easier to pass through the legislative bodies of Government. As of yet, the U.S. senate has not passed a law allowing states to require collection of taxes by internet businesses, but that point may come in the future and as internet sales increase.

Sources:

1. http://www.usa-sales-use-tax-e-commerce.com/international_internet.asp
2. http://smallbusiness.findlaw.com/business-operations/internet/internet-taxes.html
3. http://www.newrules.org/retail/inttax2.html
4. http://tinyurl.com/47d26a2 (NOLO)
5. http://www.informationweek.com/news/showArticle.jhtml?articleID=202801131
6. http://salesandtransaction.thomson.com/pdf/Tresh%20Presentation2.pdf
7. https://www.sstregister.org/sellers/SellerFAQs.Aspx#faq1