With the economic downturn, it sounds like states are once more becoming interesed in trying to tax online sales. But which state would I pay to?
With brick and mortar stores, it’s easy. If I buy something in Illinois, I pay Illinois tax. Simple.
How would this work online? Let’s say I live in Illinois, buy something from a vendor in Vermont, and have it shipped to my customer in Iowa. To top it off, I use a corporate credit card, billed to the company’s HQ in Delaware. So who get’s my sales tax dollars?
In Illinois (and I suspect other states are similar), out of state sales are already taxed. Many sellers, however, don’t collect the tax for Illinois. In such cases, the buyer is responsible to report the purchase and pay the tax to Illinois.
“Illinois residents who make purchases from non-registered out-of-state retailers (such as catalog or Internet transactions) or those who make purchases from servicepersons who do not pay use tax directly to us must file Form ST-44, Illinois Use Tax Return.
If less than $600 is owed, the return and tax is due April 15th of the year after the year in which the purchase was made.
If the total tax liability for the year is more than $600, the return and tax is due the last day of the month following the month in which the purchase was made.”
ETA: I wonder if a better revenue-producing model would be to impose large penalties for those who fail to report such purchases. Not that I have the foggiest notion who, if anyone, would forget to do such a thing.