Sales Tax

The issue of collecting sales tax for Internet purchases has become a big debate among retailers and the federal and state governments. Consumers save a great amount of money purchasing from Web sites that do not collect sales tax; however, state governments are losing out on important income.

Currently, federal law in the form of the Internet Tax Freedom Act does not require the collection of sales and use taxes on Internet transactions. Some Internet sales are taxed because the buyer lives in a state where the seller has a physical presence. For instance, anyone ordering from Sears® would pay state sales tax, since there is a Sears store in every state.

SIDEBAR: A use tax is the tax a buyer must pay because he or she purchased (and is presumably using) the item. If you live in a state that collects sales tax, theoretically, you could be required to pay a use tax on what you thought was a tax-free Internet purchase. In reality, states typically do not enforce these laws except in the case of large purchases such as motor vehicles.