Major E-Tailers Charging Sales Tax

Feb 6, 2003

Beth Cox

It's often buried in the fine print on their Web sites, but a number of major e-commerce players, including Wal-Mart and Target, have begun charging their customers sales taxes on almost all online purchases.

The move comes as a result of negotiations between the retailers and a consortium of state governments.

Target Direct, for example, operated in conjunction with, says "the amount of tax charged depends upon many factors, including the identity of the seller, the type of item purchased and the destination of the shipment."

The Target tax details, spelled out here , say that Target is charging sales tax based on the shipping address, and that includes "all states other than Alaska, Hawaii and Vermont."

Most of the retailers involved in these new, voluntary sales tax collection efforts have physical locations in the 45 states that levy such taxes. Merchant sites involved include Wal-Mart, Marshall Fields, Target, Toys R Us and Mervyn's.

The Washington Post reported that in return for starting to collect sales taxes, 38 states and the District of Columbia agreed to absolve the retailers from any liability for taxes not previously collected on Internet sales.

The agreement was hailed by the National Retail Federation, a trade group that represents 1.6 million retailers.

"On-line and other mail-order merchants who don't have to collect sales tax have an unfair price advantage over local bricks-and-mortar stores," said J. Craig Shearman senior director of media relations for the NRF. "We support a level playing field for all merchants, regardless of whether they sell their merchandise from a storefront, through a catalog or over the Internet. All retailers should be required to play by the same rules."

But collecting sales taxes on online purchases does indeed get complicated. The Target explanation, for instance, says this: "The tax rate applied to your order will generally be the combined state and local rate for the address where your order was shipped. Therefore, the sales tax rate applied to your order may be different for an order shipped to your home address than it is for an order for the very same items shipped to your work address." has a new tax explanation section that says: "Sales tax is charged for orders shipped to states where sales taxes are applicable. The amount of sales tax charged is based on current state and local tax rates. Gift-wrap and shipping and handling charges may also be subject to sales tax in applicable states. Sales tax will be refunded for returned items."

The sales tax situation before this had been that online merchants were required by law to charge tax only on in situations in which the buyer was in the same state as the company. A company in Florida, for example, is currently responsible for collecting and paying sales tax only on purchases made by Florida residents.

Now, sales taxes are beginning to go national - and apparently, faster than many e-commerce observers had anticipated. In fact, the Internet Tax Freedom Act only prohibits states from taxing consumers on the use of Internet service providers. The current moratorium does not apply to sales taxes, nor to federal taxes.

But despite the moaning from many e-tailers, a new study from Jupiter Research says that collection of such taxes is not likely to put a damper on the growth of e-commerce.

Last November delegates from 33 states met to consider a uniform sales tax aimed at Internet and catalog sales. Most states have started taking concrete steps toward adopting the streamlined sales tax proposal. Even though Congress and the White House would have to act before the online sales tax plan could become mandatory, it's clear that the Streamlined Sales Tax Project has some clout.

The Post reported that the agreement to start collecting sales taxes was worked out between the 38 states and the District of Columbia that are members of the sales tax project, and the merchants.

The Post called it "a victory for state and local governments that want to simplify their tax systems to accommodate e-commerce and level the playing field between online and main street merchants."

One reason for the emphasis on sales tax is that it represents a lot of money, and many state governments are struggling with their budgets.

A report by the University of Tennessee last year estimated that all 50 states could collectively lose more than $45 billion in Internet sales tax revenue in 2006.


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