Monday, April 17, 2006

Tax Deadline... Sales & Use Taxes

Today’s the last day to file your income tax returns in most cases, but there’s a new little nuance that many aren’t aware of or are choosing to overlook. Purchases made over the Internet—on Amazon or eBay—are taxable sources and more & more states are looking for that tax revenue they’re losing to catalog and online purchases. (Article)

Most states have provisions for “use taxes,” requiring taxes be paid on items bought in another state but used in one’s home state, but compliance—moreso with individuals as opposed to companies, which are generally required to register with tax authorities in those states where they do business and keep records of out-of-state purchases—with individuals it’s generally been on a voluntary basis. That could well be changing.

A big problem the states encounter in trying to collect taxes on out-of-state, catalog, and online purchases, is a legal concept referred to as “nexus,” meaning a company can only be taxed by a state if it has an certain degree of business presence in that state. [See Quill v. North Dakota, 504 U.S. 298 (1992)]. Enter the “Streamlined Sales Tax” initiative, spawned in March 1999 by the Executive Committee of the National Conference of State Legislatures to address implications of changing technology & an evolving electronic market. The result has been the Streamlined Sales Tax Project, in which some 40 states, including Ohio, Indiana, & Kentucky are now participating
The basic idea is to provide states with guidelines and a working model to simplify their sales and use tax collections by removing the burden from companies doing interstate, online, and catalog business, and is exemplified by the “Sales Tax Fairness & Simplification Act” (SB 2152), and the “Streamlined Sales Tax Simplification Act” (SB 2153), both introduced in December of last year.

Individual states have also passed relevant legislation, including Ohio, Kentucky, and Indiana. (NCSL has a full list posted)

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