State chasing lost tax revenue from online sales

Raleigh, N.C. — Some tax experts estimate online shopping will cost North Carolina more than $140 million in sales tax revenue this year, prompting state officials to call for Congress to end the online tax break nationwide.

Although everyone is required to pay sales tax on purchases, online firms that don't have an operation in North Carolina aren't required to collect tax from state residents.

"It's not fair," said Rita Saad, of Garner TV and Appliance, who notes that out-of-state competitors have a sales advantage that she can match only on the state's annual tax-free weekend.

The loss of sales tax revenue becomes more acute as online shopping expands. For example, last Friday, a day traditionally dedicated to in-store shopping, saw people spending 35 percent more, on average, than they did a year ago for Internet-based sales, according to Coremetrics, a Web marketing analysis firm.

The average order is now $170, which would translate into $9.77 in lost taxes for North Carolina.

The state Department of Revenue has started cracking down on companies with North Carolina sales brokers, Revenue Secretary Kenneth Lay said. In January, the state will start charging sales tax for many online downloads.

"You're getting by for now, but we are coming after those organizations that aren't paying taxes," Lay said.

Consumers are supposed to settle up their online sales tax tab on their personal income tax returns, but Lay and other officials acknowledge that most people don't. The state collected just $5.5 million from such voluntary reporting this year.

"I know it's hard to make yourself pay that extra money," Gov. Beverly Perdue said.

Perdue said Congress needs to step in to even the playing field.

"I think it's got to be some kind of federal mandate," she said. "I can do it piece by piece, but it's tough in North Carolina to be the only state and the only governor trying to enforce it."

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If North Carolina would quit being the highest taxed state in the Southeast maybe there would be more local sales and local businesses would be taxed less too so they can more easily compete.

But that is not the whole problem. It is easier to find items online because most local stores cannot afford to stock everything, especially outside the large city areas.

frosty
December 1, 2009 5:32 p.m.

The problem is ultimately caused by the greedy overpriced local merchants.

Even with shipping included, internet merchants are less expensive than the greedy local merchants.

Even if they taxed the internet sales, most internet merchants would still be cheaper.

DontLikeTheSocialistObama
December 1, 2009 2:55 p.m.

The problem is the bigger online retailers who don't have the agreement with nc - are large enough to get the bigger discounts from the manufacturers. The local stores that can't bypass the sales tax may not be large enough - so "Lower your prices/provide better service???" they won't give the stuff away - it comes down to the out of state sales will usually always be lower - and thus axing the sales tax revenue.

protestthis
December 1, 2009 2:27 p.m.

"Although everyone is required to pay sales tax on purchases, online firms that don't have an operation in North Carolina aren't required to collect tax from state residents."

This is false! Your state can only tax you on items if they originate in your state or the merchant has substantial contacts with your state - otherwise the US Constitution prohibits the collection of taxes. If you are a fool and put this on your NC tax return you are Voluntarily offering to pay the taxes! The states are trying to get the feds to change the laws and allow them to collect sales taxes from all purchases, but that has not been accomplished yet. Tell your Senators and Representatives to vote against any Streamlined Sales Tax provisions and against ANY taxes on internet purchases. NC is one of the worst offenders in imposing the "use" tax - if you intend to use it in NC then they can tax you in NC! Crooks, all of them. We need a Federal Fair Tax and NO state sales taxes!