The early days of internet shopping brought three huge benefits. First, it gave everyone access to goods that weren’t available at their local mom and pop shop. Second, it allowed people to find the guy who sold the same item for half the price. And third, internet sellers didn’t charge tax. That meant a significant savings, on top of the other benefits.
Of course, government hated the fact that it didn’t get its cut, and so imposed a duty on internet sellers to collect taxes on their sales. It presented a significant problem for sellers, as every local jurisdiction charged different percentages of sales tax, but that was the sellers’ problem.
A more problematic reason to collect sales tax was that it was killing local business. Why pay an additional 8.25% for a good? Brick and mortar stores not only had to pay rent, but had to collect tax. It wasn’t fair that they were put at such a disadvantage to internet sellers.
So, sales tax came to the web, with varying degrees of enforceability. Some laws were based on location, whether a seller had a physical location within the state so that a state could sweep them within its jurisdictional ambit. Others didn’t really care, and imposed taxes on the world.
They couldn’t really do much of anything about sellers who refused to comply, as they weren’t within the state’s jurisdiction. But buyers?
A call came in the other day because the caller received a letter from his state taxing authority informing him that he owed a significant amount of money in taxes based upon internet purchases. From 2008 to 2009. From an out-of-state seller who got in a jam with the feds. Who seized the seller’s records and was sending them to the state taxing authorities of buyers.
It appears that the seller had been collecting sales tax on its internet sales, but hadn’t bothered to report them to the state. Oh, yeah. And they kept the money too. It was a really good gig for the seller, collect sales tax because, hey, it’s taxes, you know? And keep them, thus upping their take by whatever the tax percentage was. As the company was out-of-state, how would the state know whether it was collecting tax and failing to report or pay it over?
Do you pay the sales tax? Do you know whether the business that collects the sales tax pays it over to your state? Even if you asked and they assured you they did, would you know if it was true?
Of course not.
But the law requires the buyer of goods to pay a use tax when the seller of goods fails to pay the sales tax. Technically, everything you’ve ever bought tax free is subject to a back-up tax by your state, which you are required to pay.
They even have forms for reporting it, even though they’re nearly impossible to find because no one does it. Until someone in the state taxing authority gets wind of it, and decides to send you a love letter. And if you neglected to file the form and pay the taxes timely, there are fees and penalties for being a bad citizen who failed to pay his fair share.
But 2008-2009? What about statute of limitations? An excellent question, but one that doesn’t interest taxing authorities too much. While there is a limit to how far back they can go for unintentional failure to pay, most taxing authorities consider purchasing on the internet a deliberate effort to evade sales tax. And evasion, unlike simple neglect, is evil, so it gets a far longer statute of limitations.
In New York, for example, the taxpayer bill of rights provides for a statute of limitations of three years for failure to pay. But when it’s evasion, the limitation period is doubled to six years. Of course, buying online doesn’t mean that your purpose was to evade taxes, but taxing authorities know you better than you know yourself. They know in your heart of hearts, your only purpose is to evade their taxes, no matter how much you deny it.
The explosion of internet retailing, the creation of businesses, jobs, revenue, GDP, you name it, came about because the risk of doing business with people you didn’t know, buying items you couldn’t touch, was offset by the benefits online shopping offered and a bit of faith in humankind.
When you get a letter about something that happened almost six years ago, where you did nothing more wrong than trust, that faith may be shaken and the glow of the internet may pale. But then, what’s more important, your innocent and well-intended internet purchasing, or your state making sure it collects every penny it can? Somebody has to pay for those bronze plaques bearing politicians’ names to be placed on huge granite buildings.