E-tailers Grapple With Sales Tax

E-tailers Grapple With Sales Tax

A long-standing Supreme Court decision limits the states’ ability to collect sales tax from out-of-state retailers, as long as the business has no physical presence in that state. That is to say, if you order an item from a retailer that exists solely in Denver and you don’t live in Colorado, you aren’t charged sales tax.

Here’s a look at the average sales tax per state and some major e-tailers that benefit from tax-free out-of-state orders. Some taxes may be higher in some areas, as some cities and counties attach additional percentage points.

Amazon.com

Amazon has cut its ties with North Carolina, Rhode Island and Hawaii affiliates over the issue of out-of-state taxes. More states are likely to be cut.

Amazon vs. New York

The New York State Department of Taxation recently passed a law requiring out-of-state retailers to collect sales tax from New Yorkers. Amazon.com filed a lawsuit against New York over the issue.

Other E-Tailer Home States

Zappos is headquartered in Shepherdsville, Kentucky. Overstock.com is headquartered in Salt Lake City, Utah. Zappos is headquartered in Las Vegas, Nevada. Newegg is headquartered in City of Industry, California. California has the highest sales tax rate at 8.75 percent.

In Jeopardy

Key politicians, senators and the National Governors Association have been lobbying for years to require sales tax collection on all out-of-state purchases. E-commerce sales are increasing each year, depriving states of millions in potential tax revenue.

The Top 10 Online Retailers

The number one online retailer in the U.S. is Amazon.com, with $19.2 billion in sales in 2009. The number two e-tailer is Staples, with $7.7 billion in sales. The number three online retailer is Dell, with $4.8 billion in sales. The number four online retailer in the U.S. is Office Depot with $4.8 billion in sales in 2009. The number five e-tailer is Apple, with $3.6 billion in sales. The number six e-tailer is OfficeMax, with $3.1 billion in sales in 2009. The number seven online retailer is Sears, with 2009 sales of $2.7 billion. The number eight e-tailer is CDW, with sales of $2.6 billion. The number nine online retailer is Newegg.com, with sales of $2.1 billion. The number 10 online retailer is Best Buy, with 2009 sales of $2 billion.

While many of these e-tailers also have retail stores in various states, the potential for collecting sales tax from those who do not is still enormous.

Use Tax

Consumers who live in states with sales tax are technically supposed to keep track of out-of-state purchases and report those “use taxes” on April 15. Very few do, according to state officials.