E-Commerce and Sales Tax
Throughout the country, states are not collecting some or any taxes on online transactions. This debate has been brought to Congress, state, and local governments as to whether taxes should be imposed on online transactions as well as who should standardize online taxing. Research shows that the estimated revenue losses in excess of $60 billion alone from online transactions. This number is only to grow with increased use of ecommerce. (McClure 2000) Both state and local sales taxes are collected by vendors at the time of transaction and are levied at a percentage of a product’s retail price. Alternatively, use taxes are often not collected by the vendor if the vendor does not have nexus (loosely defined as a physical presence) in the consumer’s state. Consumers are required to remit use taxes to their taxing jurisdiction. Compliance with this requirement, however, is quite low. Because of the low compliance, many observers suggest that the expansion of the internet as a means of transacting business across state lines, both from business to consumer and from business to business, threatens to diminish the ability of state and local governments to collect sales and use taxes. (Omar et al) Taxing Internet purchases is further complicated because most purchases are made across state borders. In such cases, where should the tax be collected? At the point of sale or the point of delivery? If the tax is collected at the point of sale, there would probably be a migration of online stores to sales tax-free states. The most workable idea would probably be to require the tax to be paid to the state or local government where the purchaser lives. The drawback to this, however, is that at least one rationale for collecting sales taxes in the first place is to provide state and local governments the money they need to build roads, sewers and provide other services that allow businesses to do what they do. If sales taxes are collected...
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