Your next online purchase may include a surprise: tax
Beginning today, Washington state will participate in the Streamlined Sales and Use Tax Agreement, a voluntary effort by 21 other states to try to unify...
Quick tax guide Buy a shirt at a store in most of urban King County, and an 8.9 percent sales tax will be tacked on to the purchase. Buy a similar shirt on the Internet and you may not pay any sales tax (although shipping charges may apply).
Buy a shirt at a store in most of urban King County, and an 8.9 percent sales tax will be tacked on to the purchase. Buy a similar shirt on the Internet and you may not pay any sales tax (although shipping charges may apply).
Problem: Sen. Mike Enzi, R-Wyo., doesn't want that tax revenue to slip away anymore. He has introduced a bill to tax Internet purchases that slip through the tax loophole.
Proposed solution: Nationwide, there are more than 7,500 taxing jurisdictions. Enzi's plan would create one streamlined system for participating states, allowing them to collect sales taxes on Internet and catalog sales.
Examples: Based on the 8.9 percent sales tax in most of urban King County, that could cost buyers. It's important to note that shipping charges frequently apply, but often vary depending on quantity, weight and delivery time — and can be waived at times.
When Marie Gaudet feels like shopping, she pulls up a chair and sits at her computer.
There, the Texas woman can browse and shop at her leisure — without spending money on gasoline or dealing with crowds — and save money.
"I do a lot more online than in the stores," Gaudet said. "There's no taxes, it's convenient, there are no hassles and the prices are better."
That could change, at least the taxes part.
Beginning today, Washington state will participate in the Streamlined Sales and Use Tax Agreement, a voluntary effort by 21 other states to try to unify sales taxes on online purchases.
Currently, shoppers buying items online from a catalog or business in most other states may not be taxed, but a Washington customer buying from a Washington seller is required to pay state and local sales tax dictated by where the goods are shipped from.
The new tax agreement means state residents now could be charged sales tax that they're unaccustomed to paying on certain Internet and catalog purchases from businesses in other states. More than 1,000 companies have agreed to collect the tax and send it to states where the items are delivered. More dramatic changes are planned next year.
The state's Revenue Department predicts Washington initially will see an additional $35 million to $40 million in sales tax.
Meanwhile, Congress is considering a similar plan to dip into Americans' wallets. Some lawmakers want to develop a new tax system intended to create a "level playing field" for shoppers, businesses and governments, and help all states collect sales taxes not being charged on many Internet purchases.
A separate measure calls for lawmakers to decide whether to let a temporary ban on Internet-access taxes continue when it expires Nov. 1. If the ban doesn't continue, it could lead to taxes and fees on broadband and dial-up connections and e-mail accounts.
Consumers are keeping an eye on Congress and the new tax and fee proposals.
Opponents, including the National Taxpayers Union and the Direct Marketing Association, say imposing additional taxes on consumers through the Internet is uncalled for because users already pay fees and other charges for Web service.
Another cost for Internet shoppers is shipping fees, which vary due to widely based factors such as weight of the item and the speed of delivery, although many shoppers look for deals in which shipping costs are waived.
Supporters, including Jewelers of America and the E-Fairness Coalition, say traditional retailers and local governments and states are losing out on big bucks as Internet sales soar.
Sen. Mike Enzi, R-Wyo., introduced legislation to tax Internet purchases now slipping through what some politicians consider a tax loophole.
"Simply put, if Congress continues to allow remote sales taxes to go uncollected and electronic commerce continues to grow as predicted, other taxes, such as income or property taxes, will have to be increased to offset the lost revenue to state and local governments," Enzi said. "I want to avoid that."
Separately, lawmakers are expected to review the temporary ban on Internet-access taxes. This moratorium, begun in 1998, has been extended several times, most recently in 2004.
If it expires, states and other municipalities could put in place a variety of access taxes similar to those on telephone bills.
If that were to happen, some say there could be a tax on e-mail or dial-up or broadband connections.
A measure has been filed to extend the moratorium for four years, a proposal lauded by some tax groups.
"Given the potentially destructive impact that expanding or raising Internet and telecommunication taxes could have on this important economic sector, the remedy could not be clearer," said Jeff Dircksen, director of congressional analysis for the National Taxpayers Union. "Congress and the states should declare this tax territory permanently off-limits."
Economists try to monitor online versus in-store shopping trends. Some comparisons are hard to make because at any given time there will be sales, coupons and special deals — online and in-person.
In the first quarter of this year, e-commerce sales totaled $31.5 billion, up 3 percent from the last quarter of 2006, according to the Commerce Department's census bureau.
Some estimates, such as a study by the University of Tennessee, suggest state and local governments lost out on more than $15 billion in 2003 and could lose out on more than $20 billion next year.
Enzi's bill, the "Sales Tax Fairness and Simplification Act," would create mandatory sales-tax collection on Internet purchases. It would put in place requirements of the Streamlined Sales and Use Tax Agreement that Washington state joins today.
Sales taxes on all Internet purchases could add up.
A $1,100 laptop, for instance, could cost online consumers an extra $97.90 if calculated on the 8.9 percent sales tax in most of urban King County.
A $199.95 watch could cost an extra $17.80. And sales taxes on a $10 CD could add an extra 89 cents to the bill.
The Associated Press contributed to this report.
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