Are the days of tax-free online shopping drawing to a close?

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Online shopping won out over brick-and-mortar sales this Thanksgiving weekend, at least in terms of growth since last year. Increasingly, shoppers seem in favor of the convenience of e-commerce. However, will that still be the case when their online purchases are taxed?

A sweet advantage of online shopping is that you often don't have to pay sales tax. But it sounds like we're inching closer to the final days of that luxury.

Retail groups are working to level the playing field between e-tailers and brick-and-mortar businesses, who understandably see the former as having an unfair price advantage. While there is not yet any federal legislation forcing us to pay sales tax online, there is a law that says retailers who have a physical presence in a state must tax online shoppers in that state. Lawmakers, who see a lack of online sales tax as lost revenue, are then tweaking laws at a state level to get more online retailers to collect taxes from their customers.

Take New York for instance. According to WWD, the Supreme Court on Monday refused to hear a case filed by Amazon.com and Overstock.com, who argued they should not have to collect taxes from New York shoppers because they don't have a physical presence there. Well, in 2008, the New York Court of Appeals tweaked its own definition of "physical presence" to include affiliate programs, such as affiliate links used by bloggers who collect revenue when something they link to sells. If the referrals generate more than $10,000 of sales annually for the retailer, it has to collect taxes.

"The statute serves an important function in facilitating the collection of millions of tax dollars that would otherwise be lost each year," attorneys for the New York State Department of Taxation and Finance argued in court documents, according to WWD. "Although both [Amazon and Overstock] allege they have no physical presence in New York, they rely on affiliate programs under which they pay hundreds of thousands of representatives across the country, including thousands in New York, to drum up sales."

It's an interesting and probably unforeseen (at least by us) consequence of these affiliate programs, which likely get a lot of use in a blog-filled city like New York.

Still, there are plenty of shoppers who do not have to pay taxes online since there's no sweeping federal law that forces them to do so - but that could change. In April, the Senate passed the Marketplace Fairness Act, which would require online retailers to charge its customers state and local sales tax. However, the legislation stalled in the House. New legislation is in the works, but has been difficult to pass due to gridlock in Washington. Our advice: get a lot of online shopping in now, because sometime next year it's likely going to get a bit more expensive.

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