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Taxing the Internet
By Patricia Fish
Six Republican candidates participated in a debate on December 2, 1999. To my surprise, the topic of taxing the Internet was well discussed, as it should have been. This issue will soon be rearing its ugly head and it will be a topic of much controversy.
First, online shopping is expected to quadruple in volume over the next year. By the year 2004, the year the moratorium on taxing the Internet ceases, our congress critters will be ready and armed to tax the Internet and we should well be prepared.
Before even beginning to debate the pros and cons, I suggest every US citizen take a closer look at their state sales tax laws. My own state of Maryland already taxes the Internet and folks should know their tax status before state auditors break down their doors. Maryland has what is known as a sales and "USE" tax law. That three-letter word is all important and as a tax accountant of many years I've been audited and fined for violation of same.
Seems that Marylanders, should they purchase consumer goods from out-of-state businesses, are obligated to remit to the state the sales tax on those goods as if they had purchased the items within the state. Citizens get a credit of any amount they paid in sales tax to the state of purchase, but if they paid no sales tax, then the full 5% is due to the state of Maryland.
Indeed, this is so. I've not known of much enforcement on the individual level but corporations are routinely audited, and penalized if necessary, if they do not follow the law. I worked for a company, a government contractor, that routinely purchased its computer equipment from another state. This was because the contract specifically required the contractor to use a certain vendor to purchase computer equipment. Only the state of Maryland didn't think too much of this and initiated a massive audit of the contractor's books. Sure enough, the contractor should have filed a "USE" form with the state and remitted 5% sales tax to the state. It turned out that the contractor was exempt from the law as it was acting as agent for the federal government and the federal government is exempt from Maryland's sales and use tax laws.
Beyond that, yes, Marylanders who purchase goods out of state are supposed to obtain the necessary form and pay the use tax on these goods. Citizens of our fine state will never get away with purchase of a car in another state because the MVA will automatically slap a 5% use tax on the thing just as soon as any attempt is made to register the car in Maryland. But small consumer goods? Forget about it. If a Marylander purchases a suit from a catalogue they do not have to pay sales taxes on it if the company does not do business in the state of Maryland. Sales taxes are collected only on items sold to citizens within the state of its corporation. Yet Maryland is not about to let its citizens purchase consumer goods out of state to get around the sales tax.
While the state doesn't normally bother with the small stuff, you think they won't be all over Internet purchases? What had been normally overlooked due to costs of auditing being more expensive than the tax collected, will be no more. Any state with a specific USE tax is going to be looking closely at this Internet thing, no mind any moratorium, until our congress can get its hands on some of those consumer dollars.
So the looming debate on taxing the Internet might well be moot, given the states that already have USE laws do, de facto, tax goods purchased on the Internet. When our congress critters get a chance to get a piece of the action, hey, we'll no doubt probably have TWO taxes on goods we purchase: our state's USE tax and a percent or two for the feds.
Read up on your state's law because they DO audit for this and will no doubt be casting a close eye on the Internet and the impact of online shopping.
Copyright 2000 © Patricia Fish All Rights Reserved
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