Insights

If you haven’t made an online purchase from Amazon.com yet this month, you might be surprised to find that Amazon is now collecting sales tax in the Commonwealth of Pennsylvania. The collection of Pennsylvania sales tax began on September 1, 2012. Pennsylvania is now the seventh state in which Amazon is collecting sales tax; the others are Kansas, Kentucky, North Dakota, New York, Texas and Washington. The trend will continue with collection of sales tax in California by Amazon beginning on September 15, 2012.

This development in Pennsylvania is largely in response to the Pennsylvania Department of Revenue Sales and Use Tax Bulletin 2011-01, which attempts to address sales tax collection responsibilities of retailers located outside the Commonwealth of Pennsylvania. This bulletin and the potential implications for remote sellers was discussed in a previous State and Local Tax Insight dated December 13, 2011 by Emery Stewart.

Although many Amazon customers in Pennsylvania have remarked that this will not significantly impact their online shopping habits, online shoppers should be aware that state/local and the federal government continue to look at online sales from all remote sellers as a means to increase state/local tax revenues.

In Pennsylvania, the Department of Revenue estimates that $345 million of sales tax revenue is not collected from internet, telephone and/or mail-order catalog sales annually. This is primarily a result of remote online sellers not having a sales tax collection responsibility due to the lack of physical presence in the state or sellers ignoring an existing collection responsibility coupled with buyers not remitting use tax on these non-taxed purchases.

As a result of continuing state and local budget deficits, many state and local governments are calling on the federal government to enact legislation that would permit states to require remote sellers with no physical presence to collect and remit sales or use tax on sales made to instate residents. Accordingly, both the House Judiciary Committee and the Senate Committee on Commerce, Science and Transportation recently held hearings in an attempt to discuss potential federal sales tax nexus legislation – legislation that would require remote sellers to collect sales or use tax from instate residents despite not having a physical presence in that particular state.

So buyers beware. Although Congress has shown an inability to forge consensus on varying legislation recently, it appears that some form of federal sales tax nexus legislation should be reasonably expected in the future. However, no legislative action is reasonably expected until after the pending November elections. So, continue to enjoy the ease and convenience of online shopping, but don’t be surprised to see more remote sellers beginning to charge sales tax on your online purchases in response to pressure from state and local governments.

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This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax related matter.

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