Continue Reading @ http://askbobrankin.com/internet_sales_tax_is_coming.html Internet Sales Tax Is Coming (Ask Bob Rankin) Tax-free Internet shopping is in jeopardy. The U.S. Senate voted 74-20 on April 22 to take up a bill that would permit State and local governments to collect sales and use taxes from online sellers located outside of their borders. If this becomes law, how will it affect you? Here's my analysis... The Internet Sales Tax: How Bad Will it Be? Earlier this month, I published an April Fools edition which joked about new Internet taxes on emails, Google searches, YouTube videos, and downloads. But U.S. Senate Bill S.743, dubbed the Marketplace Fairness Act of 2013, is no joke, and will likely sail through the Senate on a final vote that may come this week. The House is another matter, being dominated by Republicans who oppose all “new” taxes. But S.743 does not impose new taxes, say proponents; it only enables collection of taxes that are already owed, but few consumers pay. In most States, buyers are legally required to report taxable purchases and remit payment if the seller does not collect the tax. (Stop laughing!) Sellers are conscripted as tax collectors because taxpayers cannot be trusted or policed. Currently, a State cannot require a seller to collect sales taxes unless the seller has a “nexus” or physical presence in the State. Some States have tried to stretch the definition of “nexus” to include affiliates of online sellers, prompting Amazon and others to terminate affiliates in such States. S.743 creates a framework within which States can require out-of-state online sellers to collect and remit sales taxes on purchases delivered to locations within the States. Its provisions address many concerns that businesses have about the burdens of processing sales taxes for tens of thousands of local jurisdictions. Businesses with less than $1 million in annual online out-of-state sales would be exempt. The onus would be on States to tell businesses what to collect, right down to the States’ smallest sales tax jurisdictions. Each State must provide a single point of contact, administration, and remittance for businesses to deal with. Apportioning collections among local jurisdictions would be the State’s problem. Free software must be provided to sellers from whom a State wants to collect “that calculates sales and use taxes due on each transaction at the time the transaction is completed, that files sales and use tax returns, and that is updated to reflect rate changes.” Sellers are immunized against liability for errors in State-provided software or rate data. Any software provided by any State must be capable of handling sales and use tax transactions of all participating States. So a business would need only one software package. Consequences, Intended and Otherwise Anything that government does, even with the best intentions, has consequences. Some we can see coming, and others are not immediately obvious. Buyers, of course, are generally dismayed by the potential end of their free ride. On the bright side, the taxes collected will be spent locally to benefit buyers and their neighbors. To the extent that local businesses become more competitive with online out-of-state sellers, local economies will improve. Maybe. An old economic adage says "If you want more of something, subsidize it; if you want less, tax it." There's a legitimate concern that an Internet sales tax will have a negative impact on online purchasing. More money coming out of the pockets of consumers could have a ripple effect that will ultimately mean less purchases. And it could also drive customers to foreign online retailers, who are not subject to U.S. laws. Retailers in Canada and Mexico would not have to collect online sales taxes, and can easily ship goods to U.S. consumers. Senator Ron Wyden (D-Ore.) believes there are some privacy concerns. The proposed law would require online sellers to provide the addresses of their customers to state authorities, so they can determine how to allocate tax revenues within the state. "Tax authorities would get troves of data about online purchases delivered into their state. Curious state bureaucrats might look up the purchasing habits of ex-spouses, famous names, and political figures." The bottom line is that your private online purchases could become very public, and very embarrassing. And there are those who argue that this will impose undue burdens on both retailers and consumers, for very little benefit. Internet sales in the U. S. totaled about $226 billion in 2012, up about 16 percent from the previous year, according to the Commerce Department. By comparison, total U.S. retail sales in 2012 totaled over 4.3 trillion. So online sales represent only 5 percent of the total. If the average sales tax is 8 percent, the online sales tax will raise about $18 billion. Spread that money out to 50 states, and then divvy it up to tens of thousands of counties and cities, and nobody gets very much. If the benefits are small, and potential downsides for businesses, consumers, and the Internet economy are significant, why bother? If you feel strongly about this issue, contact your legislators, or sign this online petition. Whether S.734 becomes law remains to be seen. But the end of tax-free online shopping seems inevitable.