Online Retailers Might Have to Start Charging State Sales Taxes

Online Retailers Might Have to Start Charging State Sales Taxes (Image 1)

Some of your online purchases would get a little more expensive if Congress passes a bill that's coming up for debate in the U.S. Senate. The bill would require online retailers to start charging state sales taxes and send that money back to the states.

The U.S. Senate voted Monday to debate the bill, called the “Marketplace Fairness Act”, as early as this week.

It's called that because supporters say it's about making the marketplace fair for brick-and-mortar stores, since they have to charge sales taxes and some online retailers don't.

Under current law, an online retailer has to charge state sales taxes online if that business has a physical presence in a state. For example, if you live in South Carolina and go to and buy something, you'll be charged the state sales tax because Walmart has stores in the state. But if you go to an online retailer like LL Bean, you won't be charged the sales tax because it doesn't have a store or physical location in the state.
Under the bill in Washington, all online retailers would have to start collecting sales taxes.

Kelly Tabor owns a small business in Columbia, “Good for the Sole” shoes and accessories in the Five Points area. He says online retailers have hurt his business. “We've had customers that've come in and looked at our shoes and tried them on and, if we don't happen to have the color or size that they need, then they immediately go to their iPhone and order them online. It's kind of disheartening.”

He says he's had to drop his prices 10 percent to compete, since he has to charge the sales tax and online shoe sellers don't. “The way of the small mom-and-pop shop is on its way out,” he says.

South Carolina Reprepresentative Nathan Ballentine, R-Chapin, wants the state to be ready in case Congress passes the bill into law. He's sponsoring a state bill for what to do with the new sales tax money the state would start getting, which he says is estimated to be $70 million a year. The new money would go to state roads and bridges.

“This is not something new. People are supposed to be paying this tax already; they're just not, and this is a way to make sure that it gets collected and it gets to where the people need it, on the roads that they travel every day,” he says.

While opponents of the bill say it's a tax increase, technically it's not. If you buy something online and are not charged the state sales tax, you're supposed to keep a record of that purchase and then pay that sales tax on your state income tax return. Very few people do, Rep. Ballentine says.
Opponents also argue that adding state sales taxes would hurt online commerce. States that don't have a sales tax, like Montana and New Hampshire, are also opposed, saying states shouldn't be reaching across other states' borders to enforce their tax laws.

The bill would exempt online retailers with less than $1 million in out-of-state revenue.

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