Revenue department wants its share of online sales [Kokomo Tribune, Ind.]
(Kokomo Tribune (IN) Via Acquire Media NewsEdge) Dec. 26--Many of those presents under the Christmas tree came from the Santa Claus better known as the Internet.
What's becoming a concern for the Indiana Department of Revenue is that their buyers didn't pay state sales tax for their online purchases.
According to the IDR, Indiana shoppers' online sales increased from $6 million in 2005 to $23 million last year.
When shoppers make those purchases in brick-and-mortar retailers, they're automatically charged a sales tax.
Online retailers with brick-and-mortar buildings in a state -- Wal-Mart, Sears, J.C. Penney, etc. -- are required to pay Indiana's 7 percent sales tax for all purchases, online or in store.
However, online retailers without a physical Indiana presence are not required to pay taxes. As a result, it is up to the buyer to pay the state's sales tax, a use tax enacted in 1969.
It's a law, but state officials say it's a difficult law to enforce. But a law is a law, and all Indiana sale taxes need to paid, IDR officials say.
Some shoppers keep track of those unpaid taxes and then pay up when filing their income tax returns.
The problem is, some do not.
"It's no different than following any other Indiana law," said IDR's spokeswoman Stephanie McFarland. "Paying taxes is a law. You have to comply with the law. It's the same way that if you run a red light, the police would stop you."
Rachel Singer Gordon, author of "Point, Click and Save: Mashup Mom's Guide to Saving and Making Money Online," tries to stay on the right side of the law.
"I try to keep track of [paying sale taxes for online purchases], but sometimes I don't, but I always try to factor that [sales tax] into a purchase," she said.
"Even when you factor in the tax, there are still good discounts online. I advise people to factor in sale taxes and be aware of them. I really don't know how you would go after someone who didn't pay them."
NO ASK. NO TELL
Online sales have gone very well at Victoria's Flowers and Gifts, 27 E. Third St., Peru, and not once, said Phyllis Smith, has an out-of-state customer inquired about sale taxes.
"We have a wire service set up to handle our online sales. They follow state and federal guidelines on taxes," said Smith, a store employee. "But no customer has ever asked us about the taxes and our online sales are good."
Although the non-payment of online sales taxes was being highlighted as shoppers took advantage of holiday online deals, as tax season nears, McFarland advises online shoppers to review their 2010 receipts now to see if Indiana's sales tax was collected.
If not, "they will need to total the amount of those purchases and report the sales tax due on their 2010 Indiana income taxes in the spring," said McFarland. "During the last five years, this has really become an issue. We want to educate the public and make the public aware of the law because they probably don't have it in front of them when they are making online purchases."
Regarding a person not paying the tax, McFarland said in most cases "a person just doesn't know" and the taxes are paid. However, she added, if it is discovered that a non-payment "is clear fraud" a person would be subject to a 10 percent penalty plus the current market interest rate.
Since 1969, Indiana has had a law requiring Hoosiers to pay a "use tax," which essentially is state tax for any purchase where Indiana sales tax is not collected.
To collect online sale taxes, McFarland said some brick-and-mortar businesses, such as the Simon Property Group, owner of the Markland Mall, are seeking congressional support requiring every business to charge sale taxes regardless of location.
While some online businesses without a physical presence in the state haven't offered support for collecting online sales taxes, the Online Selling Association -- a membership group of online sellers -- supports a sales tax based on the tax where a business is located.
And to address a lack of enforcement of online sales taxes, McFarland said Indiana has partnered with 23 other states to create the Streamline Sales Tax Initiative that provides a way for online retailers to pay sales taxes.
Currently, McFarland said more than 1,800 online businesses have voluntarily begun collecting sales tax on behalf of states through the program.
Yet, not every shopper is aware of Indiana's use law, much less the new sales-tax initiative.
"I think the last thing I think about once I click and add a purchase to my [online] basket is did they include Indiana sales tax," said Gary E. Woods, of Converse, as he recently visited the Peru Public Library.
"In fact, I know it's the last thing I am thinking about. It's getting too complicated to me and I don't like shopping anyway."
Yearly, more than 3.1 million people file individual income-tax returns in Indiana, but McFarland said last year only 24,000 Indiana taxpayers reported using the use tax, amounting in more than $1.4 million being collected.
"With so many people shopping online these days, we realize there are far more who probably owe the use tax from online purchases," said IDR Commissioner John Eckart. "At this point, we're trying to educate Hoosiers about the law so they'll know about it and follow it as the state requires."
According to comScore.com, on Cyber Monday 2009, consumers spent more than $880 million online, making it the second highest spending day of 2009.
Furthermore, Forrester Research indicates as soon as 2014, Internet sales will account for 10 percent of all retail purchases -- $248.7 billion.
So as more consumers shop online, they'll need to be cognizant a good online deal may not be worth it if sale taxes are not included and will have to be paid later, said Kiseol Yang, assistant professor of merchandising at the University of North Texas.
The sales-tax money Indiana is missing is more than nickels and dimes, said McFarland. She said it amounts to big bucks when it's all added up.
A recent University of Tennessee study indicates Indiana could lose more than $398 million in uncollected sale taxes on online sales and 45 other states can lose upwards to $34 billion.
That money, said McFarland, needs to be collected to invest in the rest of the state's services.
"The tax we collect goes toward education, corrections, Medicaid," said McFarland. "Being able to give that money to these programs gives Indiana its strength."
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