Online Sales Tax Rules

Nowadays, almost every business and transaction can be done online, shopping being the most popular. A lot of people enjoy shopping at online retailers. Once they finish transactions, they notice the absence of sales tax for some of their purchases. Though the requirements for collecting sales tax for an online transaction seems rather straightforward, there are a number of exemptions, exceptions and loopholes that can complicate the tax collection process.

Same State Taxes

Unless the business unit has a physical retail presence in the same state as the consumer, it no longer needs to collect sales tax from the purchased item. If the business is a large retailer with stores across the different states, what happens is that a sales tax is collected for every state that the store is located. For instance, a customer living in California, who purchases an item from a store located in Texas, does not need to pay state sales tax. Nevertheless, if the business has a retail presence in California, the business needs to collect sales tax for remission to the state’s tax officials.

Third-Party Accounts

When purchasing items online, having a third party payment processors can create confusion. If a business uses a third-party processor, like a merchant account, situated in a different state, it should collect tax on purchases done in the state. This applies even if the business does not have a retail store in the state where the third party conducts the transactions.

Shipping Exception Rules

If a consumer in one state, California for instance, completes a purchase from a New York brand with a store in California, the company must collect tax on that purchase. However, if the consumer wants to have the item shipped to Texas, and the company does not own a store in the state, it no longer needs to collect sales tax on the transaction.

Consumer Responsibilities

If the business does not collect tax during an online transaction, it is the customer’s responsibility to pay due taxes directly to the appropriate state agency. This form of sales tax known as a “use” tax requires considerable policing by the state tax agency. Nonetheless, many states only collect taxes on very large purchases like automobiles.

Sales Tax vs. VAT

People with opposing political beliefs and philosophies support different taxation systems. Two tax concepts that are opposing are the sales tax and the value-added tax or the VAT. These two systems directly compete with each other since they both concern the taxation of consumer goods rather than other areas like income or property.

Sales Tax

What is a sales tax? A sales tax is the one that consumers pay when purchasing an item. When the customers take the items to be purchases to the cashier, he/she adds up the prices of all items and adds a percentage of the total. Most stores include the sales tax to the price stated. Meaning, the real price of the item itself is lower.

VAT

Value-added tax is also a tax on consumer items, but instead of charging it to the consumers, it is charged to the producers. This is why it is sometimes called a goods and services tax. For each step in the production process, producers have to pay tax. Based on a VAT policy, consumers are not taxed directly on sales. However, they still shoulder the costs due to higher production costs.

Difference Between Sales Tax and VAT

The main difference between the two types of taxes is that sales tax is a direct tax, while VAT is indirect. When purchasing something, the consumer easily detects the sales tax. When the receipt is examined, there is a line separating the cost of the item and the sales tax on it. On the other hand, VAT is less transparent when buying products since the effects are wrapped up in the product’s purchase price.

Politics in Taxes

As of the year 2010, over 130 countries had been applying VAT policies. During the same year, President Barack Obama proposed a national VAT in the US. This was welcomed with a lot of opposition, who said that it was a way to channel money to the federal government. They believed that tax is unnecessary. Most of the liberals questioned the policy as well since it would affect the poor more than the rich.