Does anybody actually go to the mall anymore? I can personally count on one hand the number of times I have been inside a mall in the last year. Many millennials, like myself, would much rather do our shopping in the comfort of our own homes. It isn’t only millennials, websites like Amazon.com and Ebay.com have seen their activity soar over the last decade. Online shopping is the new way to shop for many reasons. One of those reasons, that you may not even be aware of, is that in most cases you do not pay for sales tax on your purchases. Thus, online shopping is not only convenient, but it is also cheaper!

Well, Congress is well aware of this and the money that they are missing out on. The Census Bureau of the Department of Commerce estimated that in the 2nd quarter of 2016, there were e-commerce sales of $97.3 billion. For local purposes, let’s assume that this was all in the State of Wisconsin. At the general sales tax rate of 5%, this equates to $4.865 billion in uncollected sales tax.

Online retailers are not required to charge sales tax if they do not have a physical location that they sell from. Therefore, the sales are charged with what is called a use tax. The use tax puts the burden on the consumer to report the sales tax on their state tax return. If you ever wonder why your tax consultant may ask if you made any internet purchases for the year, this is why. Although consumers are supposed to report their internet purchases on their tax return, many do not.

Congress wants their money!

There have been attempts in the past by Congress to impose sales tax laws against the e-commerce businesses. Those efforts have failed, but they are not giving up. Judiciary Committee Chair Bob Goodlatte has taken it upon himself to take another swing at it. The big boys like Ebay and Amazon are keeping a close eye on his proposals as it would drastically effect their businesses.

His proposal states:   “A state may impose a sales, use or similar tax on a seller, or impose on a seller an obligation to collect such a tax imposed on a purchaser, with respect to remote sale of a product or service only if — (1) The State is the origin State for the remote sales (where the company had the most employees during the previous calendar year); (2) The tax is applied using the origin State’s tax base applicable to non-remote sales; and (3) The State participates in the State tax clearinghouse.”

The online shopping world is great for consumers, and it is a retail giant that is only going to continue to grow. So keep on clicking those purchases from your computer, but be aware that your checkout bag price may be a tad higher in the future.

Until next time,

Nicholas Hammernik, EA

Milwaukee, Waukesha, Brookfield, New Berlin, Wauwatosa tax preparation

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