Is the Internet Sales Tax Good for Business?
Well, we all knew it was coming at some point. Did you really think that Uncle Sam would never try to get his fingers into the e-commerce pie? Let’s face it. Those politicians have been chomping at the bit for years to find some way to apply a sales tax on the billions of dollars of transactions that occur online every year. Well, guess what…they found a way.
When it comes to charging sales tax, online vendors are held to the same standard that the Supreme Court set for mail-order vendors like Fingerhut: The seller (website in this case) only needs to collect the sales tax on purchases in states where the vendor has a physical presence, such as a storefront or salesman. In other words, you were responsible for taxes on online purchases from a site whose home was in your state. Any other state, however, was fair game. This no-tax shopping was the one of the main lures of online retailers for years.
There are numerous measures in state governments across the country trying to figure out ways to get around the technicalities over our complicated internet tax laws. Some states have decided to work with companies in finding a mutual middle ground for paying internet taxes while others have been much more aggressive. Which one do you think is finding more favorable opinion and success?
The nice friendly state governments are trying to give something back to the small businesses. There are a number of U.S. states forming groups joined together in setting up a system by which e-commerce companies can voluntarily pay state taxes to the states in which their customers live. If you and your website sells product out of Virginia but your customer lives in Florida, you would voluntarily pay a sales tax to the state of Florida under this agreement.
The carrot that these states are offering e-commerce companies that agree to join this system is the states offer a type of amnesty from assessment for uncollected or unpaid sales or use taxes together with interest or penalty for sales made during the period the website was not registered in the state.
The state of New York is leading the pack in aggressively trying to get as much money as they can from the world of e-commerce and have been quite creative in ways how. Just a few weeks ago, Governor Spitzer pushed the idea of taxing websites who use affiliate campaigns to find sales leads.
Many e-commerce sites have unknowingly lost their tax exemption because of how they direct traffic to their sites. They are using affiliate programs to tax websites. I told you it was clever.
In case you don’t know what an affiliate program is, let me explain real quick. An affiliate program is often used by many e-commerce sites to draw traffic to their website in hopes someone will buy whatever they are selling. These affiliate site owners provide a link to the e-commerce site in return for a financial commission on any sale that result from customers using the link.
While an affiliate program doesn’t seem much more that a boring, little advertisement on someone’s site, the tax consequences are actually pretty big in the long run. The state of New York is trying to make the argument that it is the equivalent of having an instate salesperson.
Under this creative theory, any e-commerce site that pays a New York-based website a commission is then required by law to collect a sales tax on any purchase from the state of New York, regardless of whether it originated from an affiliate site.
Now as consumers and site owners, this is a future we cannot avoid. We will at some point be paying taxes for online purchases. There is no getting around it. It isn’t really that bad either. Our government does need its tax dollars to run properly, well let’s just say run. The question at hand is what will be taxed and how much that we want answers to.
Tags: affiliate programs, e-commerce, e-retailers, internet sales tax, internet tax, new york sales tax, sales tax
