1: Sales Tax Does Not Apply to All Internet Purchases
Unlike purchases made in a store, these transactions are often not subject to sales tax.
This is a result of the 1992 U.S. Supreme Court case of Quill Corporation versus North Dakota. The Court held that in order for a state to impose a duty to collect sales tax from a corporation, the corporation must have physical presence in the state.
Therefore, an online retailer must only collect sales tax on transactions by customers from the state in which the retailer has a physical store, business office or warehouse.
2: Internet Purchases may be Subject to Use Tax
Sales to other states’ residents are still taxable. The purchase is instead normally subject to a use tax that the consumer is responsible for reporting and paying. As a result of the shift in responsibility from the seller to the buyer, many of these transactions go unreported and State’s simply do not find it cost effective to collect use tax on so many unreported small transactions.
3: States are Modifying Laws to Capture Sales Tax on Internet Purchases
A number of states have begun to address this issue by creating a variety of laws to help them collect on internet transactions. In most cases, States have broadened the definition of physical presence to include affiliate companies. Other states have made agreements with large online retailers, like Amazon.com.
With so many different rules from state to state, some online retailers have begun to ask Congress to address the issue and produce a uniform rule.