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What if online merchants collected sales tax?

The idea is increasingly popular as state governments struggle to balance their budgets.

By Karen Datko Dec 16, 2010 7:30PM

This post comes from Jim Wang at partner site Bargaineering.


As part of our "What If?" series, let's take a look at a favorite target of the fiscal hounds. Since the dawn of time -- or 1992, anyway -- online merchants have collected sales tax on online purchases only if the vendor has a physical presence in the buyer's state.


However, as many state governments ponder how they will get their budgets back into the black, collecting sales tax on all online purchases seems to be a popular idea.


Right now, people who buy online are supposed to pay the sales tax directly to their state, although very few do. But what would happen if online vendors were required to collect sales tax on all online sales?

For vendors. They hate it for logistical reasons. Having to collect sales tax for 45 different states (Alaska, Delaware, Montana, New Hampshire and Oregon don't have a state sales tax) and filing them with the states would crush many small businesses. There would be companies out there willing to fill the void, providing software to track those purchases and make those filings, but it would represent a big headache for stores, especially the small mom-and-pop varieties.


For governments. More money. Consumers spent more than $1 billion on Cyber Monday. One percent of $1 billion is $10 million. While Cyber Monday is the biggest online shopping day of the year, that's enough of a taste to get lawmakers excited. The National Conference of State Legislatures estimates that unpaid taxes on online sales will cost states a total of $8.6 billion this year. 


For consumers. Consumer behavior probably wouldn't change. Whenever I buy something online, it's usually because I can get a wider selection, more access to research, and a better price. The fact that sales tax isn't collected is just icing on the cake. It's the other things that make the online experience so much better.


If you wanted to score a great Black Friday deal, you would have had to get up early, drive to the store, wait in line, and then fight other miserable and cranky customers to get your deal. You'd have one shot at it too, because you can't be at multiple store openings at once.


To score a great Cyber Monday deal, you'd have to get up early, sit at your computer in your warm house, and roll the dice and hope the computer gods smile favorably on you. If things didn't work work out, you could try another site. Or another. You might be cranky because you didn't get the deal you wanted, but you're minutes away from crawling into your still warm covers and falling back to sleep.


Sales tax isn't the reason why online shopping is so popular. I suspect that introducing sales tax to all online purchases would shift some of the purchases offline but not enough to hurt online sales.


More from Bargaineering and MSN Money:

Jan 9, 2011 12:41AM
Wouldn't it be nice if they'd not go looking for money after it was already spent?
Dec 17, 2010 8:47PM
I'd suggest reading the US Supreme Court's decision in Quill vs North Dakota. Online retailers do not have a physical presence in most states required to create nexus and su****ect them to a state's taxation. To change this would require a change of federal law and/or the Supreme Court to reverse its earlier decision.
Dec 16, 2010 7:44PM
I don't know where you've been but, online merchants have been charging me sales tax for years...and no, they're not based in my state unless Amazon is based in New Mexico...oh wait, they aren't!
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