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buying online--do you pay tax?

15 years ago

I know many sites offer free shipping. Do you have to pay tax for purchases online? Is this one of those state by state things? Or, is it something you are supposed to consider when filing taxes or is there NO tax (what I am hoping :))? Thanks.

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Comments (9)

edlakin
15 years ago
there's only sales tax if the online seller you're purchasing from operates a business in the same state as you.

so, with a big retailer like target, you'll almost certainly pay tax. with a little online storefront which operates out of only one location, you probably won't have to.
sara_the_brit_z6_ct
15 years ago
Both: it's a state by state thing: if the company has a physical location in your state, you should be charged tax - for example, Sears should collect tax if they have a store in your state, even if you make an online purchase. You ARE supposed to complete the line on your tax form about whether you've made any on-line purchases that you weren't charged tax for, but I have a feeling not many people admit to it . . . .

If you follow the purchase process on the website through towards the end, without actually pressing "buy", the tax, if charged, will show up.
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bob_cville brings up an important point which the rest of us had overlooked. As more and more people inherit 401k's and IRAs, it is critical to understand that one needs to make the correct decision in such a case, BEFORE the funds are distributed. For our parents this was not an issue, the grandparents of Boomers didn't have these type of accounts. However, for us and succeeding generations, it is incumbent upon us to be aware not only of the current laws, but any future changes that will made in those laws by Congress. If you are inheriting any portion of an IRA, it's important that you know whether or not the owner was taking distributions. Once distributions are begun, they MUST be continued by the heirs. An IRA passed to multiple heirs may be split in any proportion the owner has specified. The heirs are best served by opening up a new IRA. Titling of this new IRA is very specific to avoid IRS problems. I've excerpted part of a WSJournal article on this issue: "...Inherited IRAs don't work like regular IRAs. If you inherit an IRA from anyone other than your husband or wife, you can't roll it into your own IRA. And you can't consolidate IRAs you inherit from different people into one account. So, if the heir had withdrawn the assets from a parent's IRA and deposited them into her own IRA, she would have undone the inherited IRA, making all its assets taxable. She also would have to remove any assets she deposited in her IRA above her allowed IRA-contribution limit for the year -- $5,000 if she's under 50, or $6,000 if she's 50 or older -- to avoid further penalties. But it appears that the account in question was left as is, except for being improperly titled. Thus, the error should be considered an administrative one that can be fixed. The reader would need to retitle the IRA so it's clear that the owner died and that she is the beneficiary. Ed Slott, an IRA consultant in Rockville Centre, N.Y., recommends using this format: John Smith IRA/ Deceased 1/1/2009/ FBO Mary Smith as beneficiary. (note: FBO means "for the benefit of") Make sure that the financial institution gets the titling right not only on the statements it sends to you, but also on the internal records it uses for reports to the IRS, he says. Some large IRA custodians use the beneficiary's name on the statements sent to him or her, but use the formal titling (as in the "John Smith" example, above) on the information it sends to the IRS to avoid confusing beneficiaries. After you have retitled the inherited IRA, you can stretch out withdrawals from the account across your lifetime, rather than being forced to withdraw the funds sooner. That gives you a chance to extend the time that tax-deferred earnings can accrue, possibly increasing your inheritance."
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erikanh
15 years ago
"If an online retailer has a physical presence in a particular state, such as a store, business office, or warehouse, it must collect sales tax from customers in that state. If a business does not have a physical presence in a state, it is not required to collect sales tax for sales into that state. This rule is derived from a 1992 Supreme Court decision which held that mail-order merchants did not need to collect sales taxes for sales into states where they did not have a physical presence."

HTH
susanilz5
15 years ago
In my experience you don't pay tax unless the site is located in your state, or they have a branch or store in your state.
annes_arbor
15 years ago
I can't speak for all states, but in Michigan, if you don't pay sales tax to the online merchant, you have to pay when you file your state income taxes.
erikanh
15 years ago
annes, I think it's the same everywhere. Here in NH we have no sales tax, so many people from Massachusetts come here to purchase big-ticket items, and they are supposed to declare it on their tax returns. I don't think many people do, though ...
paul_ma
15 years ago
Sure. Every time I buy mail order I write another check and send it off the the state of Massachusetts. :-)
solarpowered
15 years ago
This goes right back to the U.S. Constitution--the States are prohibited from taxing interstate commerce without the permission of the Congress.
twoyur
15 years ago
Amazon and NYS are currently in litigation regarding just this

"If an online retailer has a physical presence in a particular state, such as a store, business office, or warehouse, it must collect sales tax from customers in that state. If a business does not have a physical presence in a state, it is not required to collect sales tax for sales into that state. This rule is derived from a 1992 Supreme Court decision which held that mail-order merchants did not need to collect sales taxes for sales into states where they did not have a physical presence."

NYS contends that since Amazon processes purchases for businesses that have an instate presence that Amazon needs to collect taxes. As I understand it they currently are doing that pending the outcome of this case. Other "Online" only businesses are awaiting the outcome since it is thought that the reason many people order online is to avoid taxes. One thing to note this came about since NYS began to have a large budget deficit and it is call the Amazon tax

like much of the still evolving world of internet commerce the outcome of this will effect millions

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