One of the benefits of buying online has been avoiding sales taxes, which can save you a sizable chunk of change on your purchases, especially with a big-ticket item. While federal law currently does not require retailers to charge sales tax on purchases unless the retailer has a physical presence in the state (a brick-and-mortar store, a distribution center or something else), some states have enacted laws that obligate large online sellers to collect sales tax anyway – whether or not they have an actual facility in that state. These so-called “Amazon Laws” are already in place in a number of states and are under consideration in many others.

 

Paying Sales Tax: 30 States and Climbing

Amazon.com (AMZN) is the world’s largest online retailer by total sales and market capitalization, and some 186 million people visit its website each month, with sales in Q3 2016 alone reaching $32.71 billion. Currently, Amazon collects sales tax when items are purchased and shipped to destinations in the following 30 states:

Alabama Kansas North Dakota
Arizona Kentucky Ohio
California Maryland Pennsylvania
Colorado Massachusetts South Carolina
Connecticut Michigan Tennessee
District of Columbia Minnesota Texas
Florida Nevada Virginia
Georgia New Jersey Washington
Illinois New York West Virginia
Indiana North Carolina Wisconsin

 

Right now, that leaves 20 states not on this list. As Amazon continues to build distribution centers and other facilities across the country, more and more states will be added to this list.

Not Necessarily Tax Free

Even if Amazon doesn’t assess a sales tax on your purchase, you still might be on the hook for taxes. That’s because some states require you to pay use taxes on your purchase. Use taxes apply to goods you purchase outside your state of residence, and typically are calculated at the same rate as the going sales tax.

An interesting aspect of use taxes, however, is that the burden of reporting generally falls to the consumer – not the retailer. That means even if you haven’t paid taxes for an online purchase, you might be required to report it to the state and pay a tax. States have various reporting methods: California, for example, provides taxpayers with worksheets to calculate what they owe. New York, on the other hand, uses reporting forms that are filed with the taxpayer’s income tax return. Still, many people are completely unaware that such forms are available, or that they even owe tax on a purchase they may have made months ago.

Because that system is difficult to enforce and vexing to consumers, 24 states have collectively adopted the Streamlined Sales and Use Tax Agreement (SSUTA), which provides a path for online retailers to voluntarily collect taxes – saving consumers the inconvenient task of sorting out taxes themselves.

Amazon Tax Effect

Online retail giants like Amazon have for years enjoyed an advantage over their brick-and-mortar competition because they’ve been able to offer effectively lower prices by keeping sales tax out of the picture. Not surprisingly, whether an online retailer assesses sales tax or not can influence consumer behavior.

A study from researchers at Ohio State University, for example, found that consumers spent 8.3% less on products on Amazon after the Amazon Tax was put in place. The researchers also concluded that consumers were spending the same amount overall on Amazon, but because part of that was now going to sales taxes, Amazon was getting less revenue from the transaction – and consumers were getting less product. [See also: How Does Amazon Charge Taxes on Its Products? (AMZN).]

The Bottom Line

Even if you live in a state that requires you to pay sales tax on your Amazon purchases, you can still take advantage of Amazon’s annual sales tax holidays. In the future, that may be the only way to avoid paying sales tax on Amazon purchases: The proposed Marketplace Fairness Act of 2015 (now being reviewed by finance committees in Congress) would require sellers making more than $1 million in annual sales to collect sales tax, whether or not they have a physical presence in a state.

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