Internet Sales Tax

If you live in a state that charges sales tax (like North Carolina), then you may know that sales taxes are also applied to goods and services purchased over the internet. Internet sales tax law has become increasingly complex, with a bill on the very subject appearing in congress as we speak.

Some sites are required to charge internet sales tax while others are not. This is due to a combination of laws that govern whether a site has to collect sales tax. An important aspect of these laws stems from a 1992 SCOTUS (US Supreme Court) decision which ruled that mail-order merchants did not have to collect sales tax for a state in which it does not have a physical presence.

This same idea was applied to online retailers since the nature of the purchases were similar to mail-order catalogues. Even now, when the site you make a purchase from has a physical presence in the state in which you, the purchaser, reside, it has to collect sales taxes from customers in the state. Physical presence can mean a store, business office, warehouse, or even a single sales representative.

However, if you purchase from a retailer online who doesn’t have a physical presence in your state, you’re still technically required to pay taxes to the state even though the retailer doesn’t collect it. When this occurs, it’s generally referred to as a “use tax” rather than a sales tax.

In 2009, North Carolina passed a bill that has required many larger, technically out-of-state internet retailers to collect and pay sales taxes despite their lack of physical presence within the state of NC. However, under NC law, certain items purchased over the internet by North Carolina consumers are non-taxable. Examples of these non-taxable items include any products sold to a farmer for planting, cultivating, harvesting, or curing crops or other farm-related products, wood-chippers used for industrial matters, prosthetics for human use, and more.

Of course, this all may change very soon. As we speak, Congress is reviewing the so-called “Marketplace Fairness Act” You can read about it here.

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