If you’re doing some of your holiday shopping online, you might be breaking the law.
By state law, if the online merchant doesn’t charge you sales tax, you’re required to calculate it yourself and make payment to the Department of Revenue. But don’t worry if you “forget.” Hardly anyone pays the use tax, and the DOR has no way of finding out whether or not the e-merchant charged the sales tax.
While you probably don’t have to worry about getting in legal trouble, you should be concerned about the cumulative effect of all those online shoppers failing to pay the sales tax.
In 2012, state and local governments lost more than $540 million in this state and more than $23 billion nationwide due to uncollected sales tax. Given the growing trend in e-sales, those numbers surely are even higher now.
States like Washington, with no income tax, are heavily dependent on sales tax revenues to fund everything from education and transportation to parks and prisons. A half-billion dollars would go far toward helping the state meet the education costs mandated by the McClearly decision. At the local level, those taxes fund important public safety and other government functions.
There’s also a basic fairness issue to consider. Brick-and-mortar stores, including many small businesses that are the backbone of communities, are required to charge the state sales tax. This often means they must charge a higher total price than e-merchants who don’t collect the tax – putting them at a competitive disadvantage by effectively placing a surcharge on local sales.
Many states – including California, New York and Pennsylvania – have taken legislative action to try to collect at least some of the sales tax they’re due. But that’s only created a tough-to-navigate patchwork of laws. What’s needed is congressional action to create a consistent nationwide approach to Internet sales tax collection.
Toward that end, the U.S. Senate approved the Marketplace Fairness Act in May 2013. It would require merchants with more than $1 million a year in out-of-state sales to collect and remit states’ sales taxes. Supporters in the House were hoping to push the bill through this year in the lame-duck 113th Congress, but Speaker John Boehner quashed it.
Let’s hope they have better luck in 2015. In the meantime, e-shoppers should watch with interest what happens in a U.S. Supreme Court case involving a 2010 Colorado law. It requires out-of-state merchants to report online transactions to their customers and – more importantly – to state tax authorities. If the Colorado law is upheld, expect other sales tax-dependent states to enact similar legislation.
You might end up having to send a check to the “revenoors” after all.