Black Friday and Cyber Monday and sales taxes, oh my! With the internet abuzz with early results of the holiday shopping season, we thought we would take a look at some of the tax implications of Cyber Monday, which has recently morphed into a full-fledged Cyber Week. Cyber Monday is known as the busiest online shopping day of the year, when shoppers can rest their feet from the shopping exhaustion of the prior day, Black Friday. While states and both brick and mortar and online retailers continue to hash it out in court, some shoppers will be paying sales tax on purchases made online while others will not.
You may notice that when you shop online sales tax doesn’t appear in your total. But that doesn’t mean that your purchase isn’t subject to sales tax, it just means that the online retailer is not collecting the sales tax on your behalf. A case law states that retailers are held responsible for collecting the tax if they maintain a “significant physical presence” inside a jurisdiction. But this doesn’t mean that you get out of paying sales tax on your online purchases for retailers that don’t have a significant physical presence where you reside. Rather, states that impose a state sales tax, also impose a state use tax, which are essentially the same. The difference is that it is up to the consumer to report and pay the use taxes. Some states have a line on their income tax returns or forms to fill out and send in along with tax money to the state. You can imagine how few people actually take this extra step to send Uncle Sam their money. An estimate of 2012 total state and local lost revenue from states not collecting the use tax from remote internet transactions was $11.4 billion. The National Council of State Legislatures has this estimate more than doubled at $23.3 billion.
This year’s Cyber Monday saw the Supreme Court decline to hear the case challenging New York’s law requiring sales tax collection from some out-of-state online retailers. Nearly a dozen other states also have so called “Amazon” laws, which loosen the “physically present” requirement usually by expanding on its definition. From this outcome, more states may try to collect taxes on Internet sales in the future. This year, Amazon led the list of websites that reported nearly 77 million hits on Cyber Monday with almost half of the traffic. Also included in this top group were Walmart, BestBuy, Target, and JCPenney. Amazon’s traffic was up 36% from 2011. With almost $2.3 billion in sales on this year’s Cyber Monday alone, it makes sense that states would want to get a piece of the sales tax pie.
I usually try to avoid shopping on Black Friday, but I did take a trip to the Tanger Outlet mall outside of Phoenix the day after Black Friday and surprisingly found myself at times to be the only shopper in the store. Pretty surprising as many stores were continuing their Black Friday deals through the rest of the weekend. As far as Cyber Monday goes, I will join the only 12 percent surveyed by the National Retail Federation who admit to a little online shopping at work. I made just one purchase—holiday cards for my mom to send.
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These free resources should not be taken as tax or legal advice. Content provided is intended as general information. Tax regulations and laws change and the impact of laws can vary. Consult a tax advisor, CPA or lawyer for guidance on your specific situation.