Sales tax on out of state purchases

[Sunset]

I read a report once that stated the only folks in our State of IL who claimed the need to pay out of State purchases tax were politicians.
As it's too easy for their opponents to accuse them of hurting IL businesses..

As for the fairness, nothing in the tax code is fair.
Business man goes for lunch with employee, tells employee to keep coming in on time.
Business man gets to deduct his lunch , employee cannot deduct his lunch..

 

[Midpack]

Yes, there is a saving on sales tax but it is on average washed away by the relatively high cost of shipping and handling small packages. Considering sales tax savings and shipping costs in aggregate, the online retailer is at a disadvantage to the local stores. Where the online supplier is NOT at a disadvantage is in his/her ability to run at thinner margins and to carry a large inventory due to large sales volume.

I am not unsympathetic to the local stores but they hurt themselves with me when they make this transparently false sales tax claim and assume that I am too stupid to see their shipping cost advantage.

Transparently false? You might want to factor in the much greater overhead cost of the building and employees for every brick-n-mortar. More than offsets lower shipping costs - by a long shot...

 

[CRLLS]

I read a report once that stated the only folks in our State of IL who claimed the need to pay out of State purchases tax were politicians.
As it's too easy for their opponents to accuse them of hurting IL businesses..

As for the fairness, nothing in the tax code is fair.
Business man goes for lunch with employee, tells employee to keep coming in on time.
Business man gets to deduct his lunch , employee cannot deduct his lunch..

Well, I live in IL and I'm not a politician, just a regular Joe. I buy a fair amount on eBay, Amazon (yes, not all sales on Amazon.com are taxed), and other online businesses. I don't bother to keep track of the purchases, I just pay the estimated Use Tax when filing my state income tax.


IMO, to do so is honest and fair.

 

[OldShooter]

Transparently false? You might want to factor in the overhead cost of the building and employees for every brick-n-mortar. More than offsets lower shipping costs - by a long shot...

Online retailers don't have buildings and employees?

Seriously, the business models are just different. To pick out sales taxes as some kind of special monster that keeps the local business from competing is, I'll say it again, transparently false. Eventually we will see a new equilibrium of on-line and local b&m, probably dominated by the kind of blend that Walmart, Home Depot, and other big box stores are trying to develop. Even Amazon is experimenting with this. Small, specialty businesses like my friend Scott's (Pilkington Competition - Pilkington Competition) will exist at the other end of the spectrum because no single local market is large enough to support them in b&m form. There will also be many in the middle of the spectrum between blended big box and narrow specialist.

 

[Ready]

I took a closer look at the two largest electronics resellers based in NYC: Adorama and B&H Photo and Video. Both have been in business for a long time and are very large well established companies. Both have a physical presence in NY but no other locations.

Adorama collects sales tax for shipments to NY and NJ.

B&H collects sales tax for shipments to NJ, NJ, AL, CO, CT, HI, IL, IN, KY, MD, ME, MI, MN, MS, NC, ND, NJ, NY OK, SC, SD, VT, WA and WI. Note they do not collect sales tax to shipments made to California.

Has the sales tax law become so complicated that two almost identical companies, both based in the same location, could have such vastly different policies on the collection and remittance of sales tax?

 

[Midpack]

Online retailers don't have buildings and employees?

Seriously, the business models are just different. To pick out sales taxes as some kind of special monster that keeps the local business from competing is, I'll say it again, transparently false. Eventually we will see a new equilibrium of on-line and local b&m, probably dominated by the kind of blend that Walmart, Home Depot, and other big box stores are trying to develop. Even Amazon is experimenting with this. Small, specialty businesses like my friend Scott's (Pilkington Competition - Pilkington Competition) will exist at the other end of the spectrum because no single local market is large enough to support them in b&m form. There will also be many in the middle of the spectrum between blended big box and narrow specialist.

So the overhead costs of an online retailer and a brick and mortar retailer are comparable? I’d be surprised if anyone believes that.

And the loss of sales taxes not collected by online retailers has no consequences for (residents of) states, cities, etc.? Seems a short sighted. But we may have to agree to disagree.

 

[skipro33]

I'm pretty sure that much of the 'stuff' I buy on line I would not bother to take the time to get into my car, drive to several brick-n-mortar stores and research which one has the best price, service, or even treats me better than the others. I buy on line because I can do it sitting in my own home quickly and use my time NOT wasted driving around town doing other things I think are more important.

Secondary to the on-line shopping are the BIG stores; Costco, SAM's, etc. On several occasions I end up with stuff that, had I taken the time to do the shopping on-line, I would have researched a little better than standing in an isle way. I'll even take a photo while at the store so I can go home and research the item to find out if it's going to truly meet my expectations.
How many on here at least research the reviews on items when shopping on line? Can't do that in the store, at least not feasibly.

In the end, shopping Brick-n-Mortar stores is antiquated. It's like the horseless carriage; who owns a horse these days except for pleasure? So it is and will be with on-line vs b-n-m shopping.

It's come full circle; Sears and Roebuck was the primary marketer with their catalogs, now the catalog has gone digital. Sears should'a kept up with the times.

All the government cares about is getting their squeeze. Nothing more. They get it from on-line retailers, they'll throw the brick-n-mortar stores under the bus.

 

[audreyh1]

I'm pretty sure that much of the 'stuff' I buy on line I would not bother to take the time to get into my car, drive to several brick-n-mortar stores and research which one has the best price, service, or even treats me better than the others. I buy on line because I can do it sitting in my own home quickly and use my time NOT wasted driving around town doing other things I think are more important.

Secondary to the on-line shopping are the BIG stores; Costco, SAM's, etc. On several occasions I end up with stuff that, had I taken the time to do the shopping on-line, I would have researched a little better than standing in an isle way. I'll even take a photo while at the store so I can go home and research the item to find out if it's going to truly meet my expectations.
How many on here at least research the reviews on items when shopping on line? Can't do that in the store, at least not feasibly.

In the end, shopping Brick-n-Mortar stores is antiquated. It's like the horseless carriage; who owns a horse these days except for pleasure? So it is and will be with on-line vs b-n-m shopping.

It's come full circle; Sears and Roebuck was the primary marketer with their catalogs, now the catalog has gone digital. Sears should'a kept up with the times.

All the government cares about is getting their squeeze. Nothing more. They get it from on-line retailers, they'll throw the brick-n-mortar stores under the bus.

These are very good points. Comparison shopping is far easier at home.

I've occasionally seen something in the store, then researched it a home to see if it has good reviews, do I really want it, etc. Then I'm likely to just order it. I did this recently with Costco for a great deal on a small portable digital piano. I tried it, but I really wanted to make sure it was good enough so watched some demo videos and reviewed specs and read reviews. I decided to order it because it was bulky, they only had one at Costco, and I really didn't want to drive back there on a busy weekend, load it on one of those big carts, and try to get the thing into my car. The $30 extra for shipping the large item was well worth it to me.

We've dealt with several companies over the last 20 years that have done a good job of migrating over to the world of online ordering. B&H PhotoVideo is a very good example.

A lot of the huge mail-order but also large retail footprint companies did not make the transition effectively. Considering their mail order and distribution business, these big names should have been able to make this transition. Smaller more nimble companies did just fine.

Best Buy is an interesting case. They tend to have much more aggressive online pricing. Their higher in-store prices are more for the physically captive customer who is not comparison shopping. If you are willing to check their online prices you can get a much better deal.

 

[Bamaman]

I always thought that the state would have to catch me before I'd pay sales taxes on out of state purchases.

I later found out the state audits businesses outside our state for both sales taxes and payroll deductions of employees living within our state but working slightly outside.

I received a demand for sales taxes on a Honda ATV--maybe $120.

 

[kaneohe]

from the CA 540 line 91

91) Use Tax. Do not leave blank. See instructions. . . . . . . . . . . . . . . . . . . . . . . If line 91 is zero, check if: No use tax is owed.
You paid your use tax obligation directly to CDTFA.


and then at the end....................

Under penalties of perjury, I declare that I have examined this tax return, including accompanying schedules and statements, and to the best of my knowledge and belief, it is true, correct, and complete.
Sign
Here

 

[Independent]

Online retailers don't have buildings and employees?

Seriously, the business models are just different. To pick out sales taxes as some kind of special monster that keeps the local business from competing is, I'll say it again, transparently false. Eventually we will see a new equilibrium of on-line and local b&m, probably dominated by the kind of blend that Walmart, Home Depot, and other big box stores are trying to develop. Even Amazon is experimenting with this. Small, specialty businesses like my friend Scott's (Pilkington Competition - Pilkington Competition) will exist at the other end of the spectrum because no single local market is large enough to support them in b&m form. There will also be many in the middle of the spectrum between blended big box and narrow specialist.

I don't consider sales tax a "special monster". It is just one way that states fund the services they provide.

I think there are lots of natural economic differences between online and brick and mortar. You've mentioned a number. Consumers should pick between them based on these economic realities. That maximizes utility. We should not have different tax schemes between them. If my state has a sales tax on jeans, I should pay the tax regardless of how I buy them. It shouldn't matter whether the store is brick or glass, high end or low end, locally owned or part of an international megacorp, physically in my state or shipping from out of state.

 

[youbet]

These are very good points. Comparison shopping is far easier at home.

I've occasionally seen something in the store, then researched it a home to see if it has good reviews, do I really want it, etc. Then I'm likely to just order it. I did this recently with Costco for a great deal on a small portable digital piano. I tried it, but I really wanted to make sure it was good enough so watched some demo videos and reviewed specs and read reviews. I decided to order it because it was bulky, they only had one at Costco, and I really didn't want to drive back there on a busy weekend, load it on one of those big carts, and try to get the thing into my car. The $30 extra for shipping the large item was well worth it to me.

We've dealt with several companies over the last 20 years that have done a good job of migrating over to the world of online ordering. B&H PhotoVideo is a very good example.

A lot of the huge mail-order but also large retail footprint companies did not make the transition effectively. Considering their mail order and distribution business, these big names should have been able to make this transition. Smaller more nimble companies did just fine.

Best Buy is an interesting case. They tend to have much more aggressive online pricing. Their higher in-store prices are more for the physically captive customer who is not comparison shopping. If you are willing to check their online prices you can get a much better deal.

Did you pay sales tax on the digital piano that you had shipped to you?

 

[audreyh1]

Did you pay sales tax on the digital piano that you had shipped to you?

I ordered it from Costco.com. Since Costco has a physical presence in my state I pay TX sales tax whether shopping at my local store or ordering online. Same difference.

I guess it wasn’t clear from my post that I ordered it from Costco online. I did check a couple of other online places, and the Costco deal was still the best.

I am a bit nervous about the shipping. It’s a bulky item coming by UPS, and maybe even coming in four boxes. But I also know I can resolve any issues with the local Costco.

 

[Greg V]

I pay a 4% state use tax in Alabama for online purchases that do not charge sales tax. Once I had a process to track the items, it was not too bad. It would be simpler if the state income tax form allowed an estimated amount based on AGI. I've noticed in the past year or 2 that a larger portion of my online purchases include state tax in the cost. I think eventually all online vendors will have to handle state sales tax.

 

[Montecfo]

Remote online businesses and brick and mortar DO have different business models. Having remote sellers collect sales tax does not "level the playing field" since the rest of their cost structures and tactics are so different.

If you are selling remotely with limited to no physical presence in the state you have disadvantages over local retailers who have goods on hand to be examined and purchased right now. Advantages also, but focusing on tax collection as the big difference misses the point, IMHO.

And if you notice, brick and mortar retailers can at any time close their stores and go 100% digital to get the same "advantages" but they do not do this. Instead they do both: bricks and clicks.

Also, if you notice, Amazon is increasing its physical presence in states and why? To grow into new product lines and get inventory closer to the end customer. Which is exactly what brick and mortar retailers do.

Now that states have a way to force collection of sales/use tax, presumably they will be able to cut their tax rates right??

 

[Chuckanut]

If you are selling remotely with limited to no physical presence in the state you have disadvantages over local retailers who have goods on hand to be examined and purchased right now.

I must partially disagree. What often happens is a person visits the local brick and mortar store, examines the items on display, picks the one she wants, notices that it is $5 cheaper on junglevines.com and orders it online.

In effect the b&m store is subsidizing the costs of having an item to touch and feel for the online shop.

 

[Montecfo]

I must partially disagree. What often happens is a person visits the local brick and mortar store, examines the items on display, picks the one she wants, notices that it is $5 cheaper on junglevines.com and orders it online.

In effect the b&m store is subsidizing the costs of having an item to touch and feel for the online shop.

I think you are inadvertently agreeing with me. The online retailer must charge a lower price to overcome the brick and mortar retailer's advantage in this particular case you cited. Also, from your example it is clear that the two have different business models.

 

[Ready]

There is no doubt that B&M retail stores have been challenged by Amazon and the world of online retail sales. B&M stores have the advantage of being close by, and if they have what you are looking for you can pick it up immediately rather than waiting for delivery.

But Amazon has been gradually closing this gap by offering same day delivery, and in some cases two hour delivery, on many of the products that it sells. They offer a wider selection of products as well, because they are serving such a large audience compared to a local B&M store only serving the surrounding community.

Of course Amazon collects sales tax now so that advantage no longer exists. I suspect the out of state sellers not charging sales tax will eventually go away as the laws regarding tax collection evolve to meet the changing retail landscape. Then it will just be a choice of supporting a local merchant or purchasing online for the convenience and desire to avoid the retail shopping experience.

 

[CRLLS]

There is no doubt that B&M retail stores have been challenged by Amazon and the world of online retail sales. B&M stores have the advantage of being close by, and if they have what you are looking for you can pick it up immediately rather than waiting for delivery.

But Amazon has been gradually closing this gap by offering same day delivery, and in some cases two hour delivery, on many of the products that it sells. They offer a wider selection of products as well, because they are serving such a large audience compared to a local B&M store only serving the surrounding community.

Of course Amazon collects sales tax now so that advantage no longer exists. I suspect the out of state sellers not charging sales tax will eventually go away as the laws regarding tax collection evolve to meet the changing retail landscape. Then it will just be a choice of supporting a local merchant or purchasing online for the convenience and desire to avoid the retail shopping experience.

Just this week, I was surprised to see an Amazon kiosk in my local Kohl's. They were selling Ring doorbells and some other small techie-type items. It would seem that, like mail order houses of old, even Amazon is starting to see some benefits of having a retail presence, at least at some level. Everything old is new again.

 

[youbet]

Also, from your example it is clear that the two have different business models.

Certainly B and M retailers are operating with a different business model than on line retailers. I don't think anyone is questioning that. But one of the differences should NOT be whether either collects sales tax or not.

They should have (and apparently will have) different business models but the same tax paid by the consumer of any given state. Then the competitive winner is determined by consumers judging where they get the bast value and service independent of gov't sales tax influence.

If we don't like sales taxes levied by the states where we live, move or become an activist to eliminate them. But let's not have state governments influencing which retailers we judge as winners and survivors based on the selective application of sales taxes. That should be based on consumers voting which delivers the best value to them and therefore where they choose to do business.

 

[Chuckanut]

Certainly B and M retailers are operating with a different business model than on line retailers. I don't think anyone is questioning that. But one of the differences should NOT be whether either collects sales tax or not.

.

Are you suggesting that politicians should not be using the tax system to pick winners and losers, to tilt the playing field in one direction or the other, to rob Peter to pay Paul?!?!?!?!!?!?

Careful youbet. I may have to add you to my list of Dangerous Radicals who infest this site.

 

[youbet]

Careful youbet. I may have to add you to my list of Dangerous Radicals who infest this site.

Hmmmmm..... that fits pretty well with the "crazy" label another poster recently pinned on me! Guilty on all counts I guess........

 

[bada bing]

What about residents of states that don't have sales tax? I would make the case that
residents of states that don't have sales taxes are forced to subsidize other states
to a small degree. There is a cost associated with collecting sales tax for online retailers
that is built into the prices of their merchandise. There is no price break for living in a
tax free state.

I'm in favor of sales tax states doing whatever they wish to their subjects, but leave
interstate commerce alone. If they wish to impose a use tax for interstate purchases
within their boundaries, that's their business.

 

[Montecfo]

Certainly B and M retailers are operating with a different business model than on line retailers. I don't think anyone is questioning that. But one of the differences should NOT be whether either collects sales tax or not.

They should have (and apparently will have) different business models but the same tax paid by the consumer of any given state. Then the competitive winner is determined by consumers judging where they get the bast value and service independent of gov't sales tax influence.

If we don't like sales taxes levied by the states where we live, move or become an activist to eliminate them. But let's not have state governments influencing which retailers we judge as winners and survivors based on the selective application of sales taxes. That should be based on consumers voting which delivers the best value to them and therefore where they choose to do business.

If you know the history of this issue, it has nothing to do with state taxing authorities picking winners and losers. It has to do with Constitutional limits on states' abilities to tax interstate commerce.

 

[CardsFan]

What about residents of states that don't have sales tax? I would make the case that
residents of states that don't have sales taxes are forced to subsidize other states
to a small degree. There is a cost associated with collecting sales tax for online retailers
that is built into the prices of their merchandise. There is no price break for living in a
tax free state.

I'm in favor of sales tax states doing whatever they wish to their subjects, but leave
interstate commerce alone. If they wish to impose a use tax for interstate purchases
within their boundaries, that's their business.

Bold by me.

And exactly how is that different than a nation wide B&M retailer collecting taxes?

Certainly they have implemented systems, at a cost, that are not used in no sales tax states. I think collecting state sales tax for all sales, makes sense. Local taxes may be a little more burdensome.

As for me, I shop for price and convenience. Shipping prices do come into play. In that case, the on line model may not be the best option. That was their choice for a business model.

I have often found a better value at a local retailer, within a few miles of home. Then again, I needed some parts to repair a faucet. Not available anywhere locally, but delivered free to the local Home Depot ($6 worth of parts). I would have paid $15 to have them the day I needed them.