Wednesday, March 07, 2012

Look out for new taxes

Not only is the federal government broke, but most states are in the same shape. Only a few have a balanced budget, so naturally they are looking for ways to raise money. One of the most popular ideas is collecting taxes on internet sales. States estimate their loss is more than $20 billion this year alone.

Most sales tax states have a "Use Tax" and residents are required to declare the sales tax for online purchases. Because retailers don't collect them, they seldom pay. More than a dozen states have legislation that requires online retailers to collect sales taxes and there is similar legislation pending in 10 more states.

Brick and mortar retailers contend exempting online purchases from sales taxes gives online retailers an unfair advantage. New legislation introduced in Washington would give states the authority to require online retailers to collect state sales taxes, as long as they make the collection process easier. That's the problem.

The Supreme Court has ruled that states can't require online retailers to collect sales taxes unless there is a physical presence in the state. Most have interpreted that to mean they have a distribution center in the state. All of the above hints that we're headed for a VAT (value added tax) similar to that in the UK.

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