Local News

N.C. Losing Millions in Sales Tax Each Year

Posted October 5, 2007 6:47 p.m. EDT
Updated October 5, 2007 8:45 p.m. EDT

— About $200 million to $300 million a year – that’s the estimate on how much North Carolina loses in sales tax each year for online and mail order purchases.

But customers might not realize that if they’re not charged sales tax when they buy, they’re still responsible for it later.

When customers buy online from a company that has a physical presence in North Carolina, they pay sales tax when they click. If it's an out-of state seller, there's no requirement up front, but customers are supposed to pay when they file taxes.

Whether it's a lack of understanding or a wink and a nod, thousands, perhaps millions, of North Carolina consumers are breaking the law.

When people buy an HDTV or washer and dryer set at Garner TV and Appliance, they can count on a nearly 7 percent mark-up courtesy of the state. That's the sales tax they pay.

If people go online, they can find the same products from an out-of-state company. Chances are they won’t get charged for that tax. On a $1,500 dollar TV, that's more than $100 difference.

“It’s not fair to us that we're automatically charging the customer an extra almost 7 percent for the same product you can purchase online and not have to pay that extra sales tax,” said Adam Saad, with Garner TV and Appliance.

Even if people aren't charged, by law they’re supposed to pay that tax later. It’s called the user tax on the state tax form.

“How many people are going to have to do that? If you don't have to do it, you're not going to do it,” Saad said.

Whether buyers don't know or purposely shirk the responsibility, Andy Sabol of the Department of Revenue said the honor system doesn't work.

This portion of the tax form brings about $5 million a year when estimates show it should bring in $200 million to $300 million. That's why Sabol wants Congress to pass laws to require at least the bigger online sellers to collect up front.

“The bottom line is to collect the tax that's legally due from purchases on out-of-state sales,” Sabol said.

“It makes the playing ground more fair,” Saad said.

So, what are the chances the Department of Revenue will go after online sales tax offenders? Leaders said they try to track major purchases, such as cars or boats, but in the vast majority of cases they don't have the resources or access to information.