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

#99 Are You Getting The Best Retirement Advice?

Author: Andrew Davis

Test yourself: Which type of financial adviser is more likely to work in your best interests?1) A captive broker who can sell only the financial instruments produced by his or her employer, such as Fidelity.2) An independent broker who can sell fina... see more

#1493 Refinancing vs. a Home-Equity Loan: The Difference

Author: Christopher Jackson

One good thing about owning a home: It's not just a place to live and an investment (a good one, you hope), it also can be a of ready cash, should you need it.If you're already living in your home – and you have for a few years – two financial terms probably keep popping up: refinanci... see more

#1353 How Much Money Do You Need To Retire In Thailand?

Author: Andrew Smith

If your retirement dreams include a beautiful climate, new cultural experiences, access to affordable healthcare and a lower cost of living, you may be thinking about retiring abroad. One destination popular with retirees is Thailand, a small country in southern Asia known for its natural beauty,... see more

#134 What Is A Retirement Saver's Tax Credit?

Author: Andrew Davis

Everyone wants to get more money in their tax return check, or to reduce the amount owed to Uncle Sam in taxes as much as possible, but finding all of the eligible tax credits can be overwhelming. The Internal Revenue Service's website is loaded with information on tax credits, but without knowin... see more

#334 Traditional and Roth IRAs: Which is Better for Taxes?

Author: Matthew Jackson

Traditional IRAs and Roth IRAs often are mentioned in the same breath because of their similarities and the advantages they offer. But choosing one over the other without doing further research could end up being a costly decision. Both Traditional and Roth IRAs offer advantages, but those advant... see more