States Try to Beef up Sales Tax Collections

The advent of online e-tailers lhas made avoiding sales taxes even easier, but some states are fighting back in the hopes of collecting upwards of $20 billion in lost revenue.

Traveling to buy items in sales-tax-friendly states is a time-honored tradition. For example, residents of states that border Delaware, which has no sales tax, often make special trips there to save money. New Jersey has no sales tax on clothes, so New Yorkers often find it worth the time and effort to buy apparel there

The advent of online e-tailers like Amazon has made avoiding sales taxes even easier. Now, some states are fighting back and have made collecting an estimated $20 billion lost every year in sales taxes on out-of-state purchases a priority.

States that have sales taxes have a “use tax” levied on residents who buy from out-of-state vendors, and twenty-four states, along with the District of Columbia, have a special line on their state income tax forms for taxpayers to report those purchases.

Some are now warning taxpayers not to leave that line empty.

But in 1992, the Supreme Court ruled that the sales tax system was so complex that out-of-state vendors did not have to collect those taxes. As a result of that decision, say many tax preparers, most people don’t pay up.

If you want to figure out what you actually owe, it probably won’t be easy. The high-court ruling allowed states to make only those vendors who had a physical presence within the state collect the sales tax. The result is a hodge-podge of online merchants who collect the tax in some places but not others.

LL Bean, for example, charges sales tax in only nine states, while Wal-Mart imposes the tax in all 50 states. Amazon, which is in a running battle with several states over sales-tax issues, charges the tax in just five states — Washington, Kansas, Kentucky, New York, and North Dakota.