Online sales tax in Illinois becoming a reality
After a new sales tax regulation went into effect Jan. 1, some eCommerce companies found themselves in scramble mode. For proponents of having online sales treated the same as sales through brick-and-mortar locations, however, their day has finally come true in Illinois, at least partially.
Legislators in Illinois have worked for many months to create an online sale tax law to help bolster state revenues. The state’s supreme court rejected an earlier measure because it violated a federal rule against discriminatory taxes on Internet-based sales. The newly enacted law addresses the concerns of the court, and out-of-state retailers are required, as of Jan. 1, to collect a use tax of 6.25 percent, but only if they fit specific criteria, namely, that they have a physical presence in the state.
The eCommerce space took note recently when Amazon.com, the largest eCommerce entity in the world, announced that as of Feb. 1, they would begin collecting the tax. The Prairie state is the 24th from which Amazon has begun collecting sales tax. For more information from Amazon regarding sales tax, click here.
The move toward collecting an online sales tax does not sit well with consumers. According to a 2014 article from Bloomberg citing research from Ohio State University, in states that have the tax, Amazon sales are 10 percent lower than in states that do not have the tax. Furthermore, sales for competing companies that do not collect the sales tax go up by as much as 20 percent.
The argument for an online sales tax gets stronger during tough economic times when state budgets are hundreds of millions of dollars below projections. In many states, sales tax revenues account for up to half of the operating funds. By some accounts, states lose around $23 billion a year due to their inability or reluctance to collect online sales tax. Another argument for the mandatory sales tax involves the responsibility of consumers in some states to calculate their sales tax on items they purchased on the Internet, which should be included on their tax return. Miscalculating the tax could lead to an IRS audit and subsequent penalties.
Opponents of the tax say taxing online sales has a chilling effect on innovation and hurts expansion of eCommerce companies. There are already more than 7,000 state and local sales-tax provisions in 45 states and in the District of Columbia, which is another stat opponents are fond of using in arguing against the tax. On a larger scale, the issue of international competitiveness bolsters arguments against the e-tax; some opponents believe U.S.-based companies will relocate to gain non-domestic status and avoid taxing consumers.
The sales tax issue can be just as confusing for online retailers as it is for consumers, though. For clients of Avalara, however, there is no problem. Avalara, a partner company of NetSphere Strategies, helps clients face the burden of calculating, collecting and remitting transactional taxes. By working with a company’s point of sales system, Avalara can help retailers deliver accurate tax calculations in real time over a secure Internet connection. For more information, contact NetSphere Strategies about how Avalara can streamline the process of complying to new regulations coming on board.