Get Ready for Internet Sales Tax

Regardless of whether or not you think paying taxes for online purchases is right, it's time to get ready to pony up a little extra money when you buy from Internet stores. Cash strapped states are pushing for Internet sales tax, and it looks like the Federal government is ready to make that happen.

Internet sales tax is probably coming sooner than you thinkInternet sales tax is probably coming sooner than you think

The U.S. Senate voted to take up the legislation, known as the Marketplace Fairness Act, and with upwards of US$24 billion in potential tax revenue on the table, it's a safe bet there will be a serious push to turn the bill into law.

Currently, businesses that have physical retail locations in a state collect taxes for online purchases made by local residents. For example, if you buy an iPad from Apple's online store and there's also an Apple store in your state, you'll pay sales tax. Companies like Amazon.com, however, don't collect sales tax because all of their sales are online.

States see sales through sites like Amazon as money lost since taxes aren't collected, and they want a piece of that action. Some states, like Colorado and California, have attempted to boost revenue through online sales taxes, but at least in Colorado the legislation was complex and confusing, and ultimately led to Amazon dropping its affiliate program in the state -- which, in the end, hurt small businesses.

As it stands today, the MFA bill would require businesses generating over $1 million a year in out of state sales to collect tax for online purchases, according to the New York Times, saving smaller businesses from dealing with the potential expense that goes along with managing online taxes. Collecting those taxes would come with something of a headache, too, since retailers would be responsible for collecting the appropriate taxes for the location where the buyer lives.

The bill will likely increase state expenses since it would require the software needed to calculate the taxes to come from them free of charge. Assuming states decide to offer platform-native apps instead of a Web-based system for tax calculations, it's a fairly safe bet they'd go with a Microsoft Windows-only solution, which would lead to yet another expense for businesses that run on Macs, either in the form of a new computer, or at least virtualization software and a copy of Windows.

The proposed law doesn't go so far as to force states to require local businesses to collect in-state taxes, but it will require businesses to comply with other state's tax laws. For states that don't currently collect any sales tax -- Delaware, Montana, New Hampshire, and Oregon -- collection systems will have to be built from the ground up since their local businesses will still be required to charge online customers taxes.

In other words, every state will have to comply with MFA regardless of whether or not they have a state sales tax, and their local businesses will have to start collecting sales taxes for all online purchases from customers that live in states with a sales tax.

Hoping for a political party split to keep MFA from becoming law isn't likely to pan out since the bill has bi-partisan support, as does a similar bill that's currently in the House of Representatives. From the bill supporter's perspective, this is good news for local businesses that have been losing sales to online retailers. The idea being that if consumers can't save money when shopping online to avoid taxes, they'll start returning to local shops.

For states on the hunt for new tax streams, MFA has the potential to be a revenue generator, and the notion that they could keep more dollars spent in the local economy is enticing, too. Regardless of whether or not the motives are altruistic, however, the bottom line is that law makers see the potential tax revenue gain a unified online tax law could bring to the table -- and where there's money, action usually follows.

[Some image elements courtesy Shutterstock]