Online Sales Changing the Tax Game

a computer icon of a tax folder - online sales tax postNine in 10 retailers are expected to offer online deals today, Cyber Monday, according to the National Retail Federation. Those deals are expected to push online sales to $32 billion during the holiday season, up more than 10% from last year.

Numbers like these should have retailers salivating, and encourage state and local governments hoping to fill some gaping holes in their budgets caused by revenue shortages from the past few years.

Forty-five states rely on sales taxes on goods and services as part of their annual state budgets; the exceptions are Alaska, Delaware, Montana, New Hampshire and Oregon. Rates range from 4% to 8.25% at the state level, with local additions boosting rates to over 10% in some municipalities. That should translate into a combined boost of over $1 billion in sales taxes for those states that do charge sales taxes -- not a bad haul by any standards.However, state and local governments shouldn't start spending those dollars yet. It's estimated that nearly $19 billion in online sales and use tax will escape collection in 2010; by 2012, that number is expected to climb to $23 billion.

States have been trying to dream up ways to boost collection efforts in an effort to recover some of that lost revenue. Allowing online retailers to avoid collecting tax is, the states argue, unfair to local businesses that are subject to the tax. It also increases administrative costs at the state and local levels since many states, such as Pennsylvania and Massachusetts, impose a "use tax" on residents. A use tax is generally imposed at the same rate as a sales tax and is levied on residents of a state who buy products to use in the state. This means a product that might not have been taxed online (or that might have been physically purchased in another state, like Delaware, not subject to sales tax) must be separately reported by the taxpayer and the resulting tax must be paid. Realistically, few taxpayers actually report and pay use tax, leaving huge gaps in expected tax collections versus actual collections.

Of course, this doesn't mean states are ready to give up that extra revenue just yet. Some states are stepping up efforts to collect from taxpayers who refuse to report. In North Carolina, for example, the Department of Revenue is trying to force online giant Amazon.com to hand over its resident customer list so it can match up sales with reports. Other states, like Texas and New York, are making real efforts to establish a legal basis for collecting sales tax from Internet sales. So far, their success has been mixed.

It may finally fall to Congress to make the laws more friendly to states that are seeking to enforce sales tax laws based on "presence." At least one bill, H.R.5660, also known as the Main Street Fairness Act, has been introduced this year in an effort to subject online sales to the same tax scheme as in-person sales. The bill currently sits in the House Committee on the Judiciary, which means, for now, states are on their own.

This Cyber Monday, it may feel as easy as a click of a mouse to make online purchases, but the laws surrounding those purchases can be complicated. It's important to know what the rules are for sales and use tax in your state -- and to keep up with the changes. Technology is moving fast, and state taxing authorities are hot on the trail.

Video: Debt Cancellation and Your Taxes Explained

Having your debt cancelled may square you with your creditor, but that debt may still be taxable. This video will help you determine whether you need to report your cancelled debt to the IRS.

Read More

Brought to you by TurboTax.com

Claiming a Non-Citizen Spouse and Children on Your Taxes

When your spouse and children are U.S. citizens, claiming them on your taxes is simple: just provide their names and Social Security numbers. When they're non-citizens, though, things may be a little more complicated. But you can still claim them—and reap the tax benefits of doing so.

Read More

Brought to you by TurboTax.com

What is IRS Form 8824: Like-Kind Exchange

Ordinarily, when you sell something for more than what you paid to get it, you have a capital gain; when you sell it for less than what you paid, you have a capital loss. Both can affect your taxes. But if you immediately buy a similar property to replace the one you sold, the tax code calls that a "like-kind exchange," and it lets you delay some or all of the tax effects. The Internal Revenue Service (IRS) uses Form 8824 for like-kind exchanges.

Read More

Brought to you by TurboTax.com

Tax Strategies for an Early Retirement

Retirement. The word sounds so good to so many people because of what it implies: a life of leisure, free of the daily grind of workdays that last at least eight or nine hours and as many as 10 or 12 if you are unlucky. But there is one thing from which even retirement does not excuse you: paying taxes.

Read More

Brought to you by TurboTax.com
Read Full Story