This is the worlds leading source of financial content on the web, ranging from market news to retirement strategies, investing education to insights from advisors.
Forex Forever!

Internet Sales Tax Vs. Brick & Mortar Sales Tax

Author: Ethan Smith

The sales tax at a brick and mortar store is reflective of a state's base sales tax plus local sales taxes imposed by counties and cities. Some states have placed exceptions on sales taxes; a common exception is on staple food items. A sales tax is usually collected by the business owner or store from the customer at the time of purchase. The funds collected by the business are not revenue; rather, they are used to pay the state or local government that mandates the sales tax. An Internet sales tax is a special tax on goods purchased online rather than in a brick and mortar store or through a mail-order catalog.

Sales Taxes at Brick and Mortar Shops

If a sales tax is imposed, its presence implies the business has a nexus to the government collecting the tax or a relationship cemented by physical location. When the nexus of a business cannot be traced to a given location, as is oftentimes the case with Internet companies and mail-order catalogs, sales taxes do not need to be paid, but the state may instead impose a use tax on the consumer who purchases items from a business located out of the state.

The purpose of a sales tax is to give tax revenue to the local and state government in the location where a business enables its transactions. In exchange for the business' ability to conduct transactions within a given location, taxes are collected. A state government or a local government may raise its sales taxes in an attempt to manage an economy or create a sales tax to collect revenue from key industries that depend on the local infrastructure of a city or state to operate.

Each state has its own sales tax rate, though some states do not have a state-wide sales tax, including Alaska. Sales taxes have the effect of making purchases more expensive for consumers. Certain goods such as prepared meals, hotel rentals and car rentals are regulated in a different manner from other goods, and a state may decide to place a special rate on these services and goods.

To encourage an industry's business transactions and operation, a state can subsidize its sales taxes and offer a reduced rate or a rebate. Education is one industry that is often heavily subsidized by a state to promote its activities.

Internet Sales Tax

The sales tax is placed on goods and services depending on the location to which a customer requests a package be mailed rather than where the business' IP address is located or where the customer paying for the goods lives. For instance, if a person living in Florida wants to send a gift purchased from a company in New York to a friend in California, if there was an Internet sales tax, then the good is taxed at the rate in California. Some states such as California see no distinction between goods purchased in stores and online and have stated it is the consumer's duty to file use taxes on goods that were not charged a sales tax at the point of sale.

Internet sales taxes are placed in an effort to maintain competition between brick and mortar stores and virtual stores while siphoning desirable tax dollars from large online vendors such as into the states to which packages are sent. When consumers purchase goods online from large retailers that have a physical presence or warehouses, they are more likely to incur an Internet sales tax; however, this is dependent on the laws and regulations of a given state. There are some retailers online, in particular those that have no warehouse in the United States or deal exclusively in Internet arbitrage sales, that do not charge sales taxes.

last five articles

#1102 An Introduction To Target Date Funds

Author: Ethan Harris

Target date mutual funds can be an alternative to bonds and CDs for investors who do not wish to actively manage their savings. This is because these funds periodically reallocate their holdings to a more conservative mix over time as the fund holder approaches the target date – usually retirem... see more

#1708 Top 4 Billionaires Living In France

Author: Andrew Smith

As of 2015, France was home to 43 of the world's billionaires. It is also fourth on the billionaire list in Europe, trailing Russia, Germany and the United Kingdom, and it claimed the world's wealthiest woman, 91-year old Liliane Bettencourt. The list of France's wealthiest residents is full of v... see more

#1489 Understand the Real Cost of Refinancing A Mortgage

Author: Jacob Smith

With interest rates low and seeming not yet prepared to head north, refinancing a mortgage remains irresistible to many homeowners. But in gauging whether a refinancing makes financial sense, don't overlook the less obvious expense that goes with it: the various fees that can run into the thousan... see more

#775 How Pawnshops Make Money

Author: Daniel Davis

Pawnshops make money by providing personal loans, reselling retail items and offering auxiliary services, such as money transfers or cellphone activation. Earning interest on loans and profits on retail sales are the principal income s for the standard business model for a pawnshop. Pawnshops typ... see more

#448 How To Properly Research For The Best Mortgage Rate

Author: Daniel Taylor

Are you ready to refinance your home? Or are you looking for the best mortgage rate to close on your new house?You've probably been told to shop around for the best rate, but what exactly does that entail? With some preparation and research, you can save big if you get the right mortgage r... see more