Internet sales tax: What you need to know

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by Chris Isidore
Many online purchases could soon be more expensive, if a long-debated Internet sales tax law advances through Congress.
The law would allow 45 states and the District of Columbia to demand that online retailers collect sales tax on purchases.
Estimates are that consumers would be spending between $12 billion to $23 billion more a year due to the increased tax collection.
Here’s what you need to know about the current law on online purchase and what would happen under the legislation:
When is an Internet retailer required to collect sales tax under current law?
Essentially states can only demand that online retailers that have a physical presence in their states—such as a store, a warehouse or a factory—collect sales taxes on purchases by residents of that state. Technically people who buy goods online tax free are supposed to make sales tax payments on those purchases to their home state. But estimates are that only about 1 percent of buyers comply with those widely unenforced laws.
Who would pay sales tax under the proposed legislation?
Sellers with more than $1 million a year in sales would be responsible for collecting the tax from buyers in the 45 states plus D.C. that currently charge sales tax. Even if an online retailer provides “tax-free” purchases as a way of attracting customers, the way many now offer free shipping, it would be responsible for paying the sales taxes to the various states.

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