Ever wonder why online shopping is often much cheaper than shopping at your local brick-and-mortar stores? One reason is that consumers don’t pay state sales tax. Due to tax code loopholes, retailers aren’t required to collect sales tax from residents of a state unless the retailer has a physical presence in that state.
While this has made shopping more affordable for some consumers, Congress is now considering a bill that might make your mouse-click purchases a little more expensive. New legislation, if passed, would essentially allow states to collect sales tax from retailers that are based in other states.
So what exactly does this mean for you? Let’s discuss how this proposed tax bill will affect consumers who shop online.
A Change in Precedent
First, a very brief history lesson. Understanding the origin of our current tax legislation is an important step to understanding this issue.
In 1992, the Supreme Court laid down the ruling that essentially governs online sales tax currently. It dictated the aforementioned guidelines about physical presence, which became very convenient upon the advent of online shopping a few years alter.
Most online shoppers don’t have to deal with any kind of sales tax, but states are starting to demand that this changes, as they feel that they’re collectively missing out on billions of dollars in revenue. The fact that many states are dealing with budgetary issues doesn’t really make the situation easier.
Several states have been putting the pressure on Congress, hoping to get a change in the law that will allow them to collect the sales tax that they feel they’re owed.
Why Hasn’t This Happened Already?
The Supreme Court’s 1992 ruling certainly seems outdated when considering it was only passed two decades ago. There are, however, online retailers are insisting that a number of factors make it tough or impossible for them to properly collect sales tax from shoppers in other states.
For one thing, different states have different rules and regulations that apply to sales tax, and keeping track of all of them can become very complicated. There are also different rates that must be considered.
Another factor that makes things difficult is the fact that different products are taxed differently in different states. It’s a lot to keep track of.
Of course, that’s not the only reason, as TIME points out:
“Out-of-state retailers don’t emphasize this, but not having to collect the taxes also makes their products cheaper, compared with in-state retailers that have to.”
States are arguing that advancements in software and other technologies have made it entirely possible for stores to keep track of the various rules and rates associated with individual state sales tax.
What This Means for You
Thankfully, even if the online sales tax does pass, it’s unlikely to have any serious effect on consumers right away.
Online shopping will likely continue to be cheaper than its brick-and-mortar counterpart as stores that operate out of physical locations have more overhead expenses.
However, charging state sales tax for online goods will allow local businesses to be more competitive with their digital peers and potentially help local economies.
Are there any ways that you save money when you’re shopping? Whether it’s online or in real life, let us know in the comments section!