Reminder of sales tax liability

Today kicks off the "holiday" feature on examiner.com, and I want to contribute by discussing how buying and selling things online can somewhat avoid sales taxes. I want to be clear that there is difference between taking advantage of a law to legally avoid paying any tax and breaking the law to evade that tax.

My situation provides a good example of the difference between avoiding and evading taxes. I am a self-employed freelance writer and avoid income taxes by contributing to my independent retirement account. I also report all the money that clients pay me for projects; not doing so would be illegally evading  taxes that I owe on that income. Further, I have resisted the temptation to declare a deduction for the two kittens that I adopted recently or to claim a medical deduction for their veternarian bills.

A large percentage of  tax evaders get caught and end up paying much more than they would if they had made the required amount in the first place. This relates to the balance between the benefits of breaking a law and the cost of being caught about which I wrote previously.

The rule regarding buying and selling items online is that the seller that has a business is required to charge and collect a sales tax if it has a presence in the state to which it is sending the item. This seems to be true even if the seller works through an affiliate and only that affiliate has a physical presence in the state where the item is being sent.

Again using my own experience as a guideline, I regularly bought DVDs from Amazon.com before some horrendous customer service experiences. Amazon never charged me a sales tax on these purchases because it and any affiliate that it used to ship these DVDs did not have a physical presence in the Peoples Republic of Taxachusetts. However, Amazon did charge a sales tax on a book that was shipped from a Taxachusetts address. I suspect that it was a Border's warehouse.

This law is based on an older law that established the same rule for buying items through the mail or over the telephone from a retailer. For example, Maine-based LL Bean only began charging me a sales tax on items that I ordered online or over the telephone when they opened stores in Taxachusetts. However, Bean follows the Taxachusetts laws by not charging a sales tax on clothing that is below a certain amount. I believe that this amount is $350.

Unfortunately, the old expression that something that sounds too good to be true probably is not applies here. The online retailer does not need to charge or collect a sales tax as described above but most states with a sales tax require that the person buying the items report the amount of those purchases on his or her state income tax form and pay the tax on them. I report an amount on my Taxachusetts form every year simply to avoid trouble and certainly will after writing this entry.

It has been understood widely that collecting a sales tax on these items has not been a large priority and has been difficult to enforce. However, the impact of our abysmal economy on tax revenues and the fact that computer-based records are thorough and accessible easily suggest that states may be doing more to close this gap between the amount of sales tax to which they are entitled and the amount that they collect. They will simply do a cost-benefit analysis to determine if the extra effort will recover enough taxes to make such a program worthwhile.

I want to state again that I do not advocate not paying taxes on online purchases. I am just saying that the tax authorities have not focused on this in the past.

Please do feel free to share comments or questions as additions to this entry or as e-mail to nelsonexminer@gmail.com. This entry is also a very good one for my standard reminder that nothing that I write can be considered legal advice or provide a basis for forming an attorney-client relationship.