As Congress debates whether or not to pass the Main Street Fairness Act, consumers are wondering what this means to them. In fact, customers have been wondering for years why they pay sales tax to some online and catalog orders and not to others. The Main Street Fairness Act would require online retailers to charge sales tax to everyone, not just those in selected states. So, why do we pay sales tax to some, and what would this change mean?
Right now, consumers are required to pay sales tax on their purchases whether the seller charges sales tax or not. Have you reported your "use tax" at the end of the year, and have you kept track of the items you purchased free of tax throughout the year? If you're like most people, you probably haven't.
The Commonwealth of Pennsylvania estimates that every year it loses $345 million due to internet sales companies that do not charge sales tax. With a revised tax return form, the state hopes to recoup between $5-6 million of those lost taxes. To Pennsylvania, as well as to many other states, the lost revenue could be used for needed infrastructure repairs or educational funding.
The problem with the addition of the Main Street Fairness Act isn't the "horrendously complicated" situation that Amazon claims it to be. Thanks to the technology involved in online orders, it's a much more streamlined process than it was years ago. The problem lies in the shift of consumers to understand that they must now pay sales tax on every on-line purchase.
Previously, if you had an order shipped to a state that houses a warehouse, store, or office owned by the company selling the product, you were required to pay sales tax. (Think about the order forms that list "residents of CA and AR must calculate sales tax.") If you ordered from LL Bean, for example, for years and never paid sales tax but then were required to pay tax on last year's holiday order, that meant that a new LL Bean store probably opened in your state.
If the Main Street Fairness Act were passed, it would add a maximum of 7.5% general tax to online purchases. Is that enough to worry most consumers? For every $100 purchased it adds $7.50, but for $25 purchases it's only an additional $1.87. Is it worth worrying about? That's up to the consumer, but considering shipping costs have made a steady increase over the years, the sales tax might not be the charge that most concerns people.
While consumers might enjoy the cheaper prices due to the omitted sales tax, brick and mortar stores suffer in the face of it. Online competition greatly affects the stores' prices and stock, and competing over sales tax might be the breaking point for some.
Another inequity lies in highly populated retail states. Few retail stores reside in North Dakota than in California. Therefore, residents of California have been paying sales tax upon checkout on more items than residents in North Dakota. The flat sales tax requirement would equalize this charge nationwide.
All the while, knowing now that you are responsible for paying sales tax on items regardless of whether or not you've paid the tax upon checkout or at the end of the tax year, the passing of the Main Street Fairness Act would eliminate all the confusion and relinquish taxpayers of the responsibility of tallying their owed use tax.