Say Goodbye to Amazon’s Tax-Free Shopping

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Amazon LogoMark your calendars, shoppers, because “tax-free” online shopping is ending on April 1stNope, this is not an April fool’s Day joke.

But, it’s also not news. Legally, tax-free online shopping never existed.

After years of court battles fighting the requirement to collect sales tax nationwide, the e-commerce giant announced the final four states to complete its sales tax collecting list – Hawaii, Idaho, Maine and New Mexico.  Five states, namely, Alaska, Delaware, Montana, New Hampshire and Oregon, are exempted from the list since these states don’t impose a sales tax at all.

Starting next month, Amazon will be collecting sales tax from all 45 states that do charge tax on their sales.

As a customer of Amazon, what does this mean to you?

It depends, actually.  If you have been following the law to date, it will simplify your life, because you will no longer have to report and pay Use Tax (self-imposed sales tax for your untaxed purchases) for your state, on items purchased from Amazon.com, and on some items purchased from third party sellers on Amazon.

You HAVE been reporting your purchases and paying Use Tax on them, right?  No?  A-Ha!  You have just uncovered the reason that Amazon will be collecting and remitting sales tax on your behalf, because most people consider Amazon a “no sales tax” venue and simply don’t report their purchases. In fact, npr.org estimated in a 2013 report that only 1.6% of online buyers actually pay Use Tax on their purchases. I’m surprised that the percentage is so high!

Since most states have no way of knowing what you bought, they can’t assess the tax, and the states have been throwing up their hands in despair, knowing that they are missing out on millions of dollars in taxes.  Brick and mortar businesses have also been enraged by this practice, as they assert that it creates an un-level playing field.

So, are there any further loopholes?  Well, there are no loopholes to the law, and there never have been, but you may still avoid paying the sales tax online under certain circumstances.  You see, you are not the only person who may be circumventing the law. There are all those third-party sellers that sell on the Amazon marketplace but don’t yet collect and remit sales tax on your behalf.  There’s a raging debate in many seller communities about whether or not they are actually required to collect on behalf of the state.

There’s no easy way to find those sellers, plus their status can change at any time, so fishing for sellers who don’t collect tax is a difficult and probably fruitless endeavor.  For now, the take-home message of this post is:  Watch your shopping cart when you check out.  See if you are being charged sales tax.  If you are in one of the states that does impose a sales/use tax on their citizens, and you are being charged tax, you need do nothing further.  If you aren’t being charged tax on otherwise taxable items, and your state does impose a tax, make note of this information for paying your use tax at the end of the year.

Even though the states have previously been unable to determine what you have been buying online, rest assured that inability is eventually going away.

Probably not what you wanted to hear!

How will that new sales-tax collection affect you? Please let us know in the comments (all comments are moderated, so please be patient).