Out-Of-State Internet Purchases Are Not Tax-Free!

Today I will address one of the most prevalent misconceptions amongst consumers these days:  that internet purchases are free of sales tax.  Let me clear this one up:  in most states with some sort of sales tax (I hesitate to say all, but here’s a list), you owe sales tax on all purchases, internet purchases from foreign or out-of-state vendors included!  Let me repeat, you owe sales tax on all internet purchases.

What The Law Really Says

Most consumers, and I used to be one of them, merely assumed that since online retailers typically don’t charge sales tax, you don’t have to pay it.  Nothing could be further from the truth.  The obligation of retailers to collect sales tax from its customers and the obligation of customers to pay sales tax on purchases are two completely different things.

The law most people get confused is the interstate commerce rule.  The theory goes that since Amazon.com is based in California and I live in Georgia, Amazon can’t charge me sales tax because that would violate the constitution’s interstate commerce clause, namely that the federal government holds jurisdiction over commerce that crosses state lines.  Thus, they say, charging sales tax on out-of-state internet purchases is illegal.  This is incorrect.

The clause merely means that out-of-state retailers can’t be required to collect sales tax on out-of-state purchases.  In this case, Amazon isn’t responsible for charging and collecting sales tax for my state (Georgia) because it is based in California.  However, this says nothing of my obligation to pay sales tax to the state myself.  Indeed, by Georgia law I am technically required to file a return with the state every year and pay sales tax on out-of-state purchases I haven’t already paid sales tax on.  Most states have similar laws, meaning you are required by law to report and pay sales tax on all internet purchases.

When’s the last time you remitted sales tax on your tax return in April? Have you ever?  Or have you simply assumed all along that sales tax wasn’t owed?