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No online sales tax: a Cyber Monday myth?

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Posted at 10:30 PM, Dec 02, 2013
and last updated 2013-12-03 00:30:18-05

SALT LAKE CITY -- On this Cyber Monday, Dave Davis, President of the Utah Retail Merchants Association had a message for online shoppers.

"They're under the mistaken impression that buying online is a tax free zone, and it clearly is not," Davis told Fox 13.

From a legal standpoint, he is correct. State sales tax is required on all purchases (online or not) in 45 states including Utah. Five states (Montana, Oregon, Alaska, Delaware and New Hampshire) have no state sales tax.

Currently, most online retailers only charge sales tax for purchases made in states where they have a physical presence. For example, Utahns who shop from Target or Walmart online will see state sales tax in their total. But online giants like Amazon and Ebay typically do not collect state sales tax.
"Amazon.com then transfers the liability to remit that sales tax to the consumer, and then the consumer doesn't realize they owe that tax" Davis said. "You’re exposing yourself potentially to tax audit liability."

Davis admits most consumers are unaware of this and says it would be very difficult for people to settle up with the state even if they want to, as there are no clear methods to do so.

As for online retailers, Davis said they've chosen not to collect the taxes to bolster business.

"They want the 7 percent advantage over a brick and mortar retailer," he said.
The state of Utah has little hope of ever recouping millions of dollars in past sales taxes, which were not collected, but future tax revenue could come if a new federal law is passed.

Last May, the Senate passed a bill on to the House of Representatives, which if passed, would require online retailers to begin collecting and distributing state sales taxes to the 45 states which require them.

Opponents of the bill say it could hamper free enterprise and stifle smaller companies.

The bill makes an exception for companies which do less than one million dollars in sales per year.