Is The Internet Really a Tax Free Zone?

The Internet may be more of a tax confusion zone than a tax-free zone

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More and more people are being invited to shop the Internet because of claims that such shopping is tax-free.  Well, in reality, it all depends.  One of the deciding factors as to whether or not you can actually shop the Internet tax-free is what state you are from.

Let’s say that you live in Pennsylvania and you regularly buy dried mushrooms from a supplier in Mexico.  Since you are buying the product from someone in Mexico, there is no sales tax attached to your purchases.  However, let’s say that six months down the road, that Mexican mushroom supplier opens a store location in Pennsylvania.  All your purchases from that Mexican mushroom supplier are taxable from the time the Pennsylvania store is opened on out.  Your purchases will now reflect an additional 6% sales tax charge because you and your supplier operate from Pennsylvania.

The responsibility to pay taxes is dependent upon the relationship between the buyer and the seller.  Therefore it is not totally true to refer to the Internet as a tax-free zone.  The location of the buyer and the location of the seller are paramount in relation to the rules of the state.

When the buyer and seller can be said to operate in the same state, taxes apply as determined by that state.  State rules trump all.  Let’s say that the Mexican mushroom supplier opened a store in Delaware. Now, you might assume that if you lived in Delaware and purchased mushrooms from the Mexican mushroom supplier, you would have to pay sales tax.  You would be right, except there is no sales tax in Delaware!  State rules trump all.

Now, we come to states that have a “use” tax.  A use tax is sort of a sales tax only it supposedly applies to every taxable good that is procured within state borders.  In other words, if you made purchases from that Mexican mushroom supplier from your home in Pennsylvania, you might not be subject to sales tax because he has no store in Pennsylvania.  You may, however, be subject to a use tax because the mushrooms you buy from Mexico are being, technically, purchased within the state borders of Pennsylvania.  Use taxes vary from state to state, as do sales taxes.  Sales taxes are generally paid by the consumer to the merchant and collected from the merchant by the state.  Use taxes are usually paid directly to the state.

By these two examples alone we can see that the Internet may be more of a tax confusion zone than a tax-free zone.

If you are planning to open an Internet business that will sell product directly to consumers from a website, you should consult a tax professional in order to fully understand your tax obligations under your state’s laws.

Source by Chintamani