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University of Cebu Banilad

College of Business and Accountancy


Taxation on Internet Sales
English 6A
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(nline selling and online sho))ing are fa*iliar to the ears of *any )eo)le no+adays&
(nline sellers attract *any )eo)le, es)ecially sho))ers, by offering )roducts in lo+er )rices than
those in the bouti-ues or stores& (nline selling *ay re-uire less effort and fe+er ex)enses since
the seller +ill .ust )ost the )roduct/s and the )rice/s on the +ebsite and that0s it& (n the other
hand, online sho))ing ta1es less effort too& 2ust sit in front of your co*)uter, search for )roducts
and let the seller 1no+ that you0ll be buying their )roduct/s& It0s very convenient to both )arties&
But are you even curious +hy are their )rices *ore affordable than those on stores3 Is online
selling/buying sub.ect to sales tax3 4et0s see if +e can find ans+ers&
According to 5olo, the obligation to )ay sales tax is deter*ined by the location of the
buyer, not the seller& If a business does not have a )hysical )resence in a )articular state, such as
a store or +arehouse, it is not re-uired to collect sales tax for sales fro* custo*ers in that state
65olo, 2anuary 1, #117& In this case, it is only the custo*er +ho is to be taxed, but not all the
ti*e& It0s unless the seller has a )hysical +arehouse or store in the sa*e )lace or state&
A sales tax rate can be a co*bination of state, city, .urisdiction and other tax rates& Also,
de)ending on the ty)e of )roduct, tax rates differ fro* location to location 6Bentru* et al&, ##,
)& #867& The tax rate of a )roduct *ay be different de)ending on state and local tax la+s& So,
+henever a custo*er buys in an online sho) and that sho) has a )hysical store in the sa*e area
+ith the buyer, then the buyer is sub.ect to sales tax& And it0s not the sa*e tax rate that is usually
used by co*)anies& There are a lot of tax rates that should be co*bined but it also de)ends on
the tax la+s of the area&
According to 2ean $urray, states have several )roble*s in atte*)ting to collect sales
taxes on internet sales& These include that it is difficult to *onitor, the *ore aggressive the state
gets in )ursuing this issue, the *ore li1ely it is that they +ill lose businesses, custo*ers can
avoid )aying sales taxes by using a for+arding service, and others 62ean $urray, A)ril #, #87&
So*e states don0t collect sales taxes in internet sales because of the *entioned reasons& It +ould
be very difficult to trac1 all of the *illions of transactions going through the Internet every day
and decide +hich are by co*)anies +ith a )resence in the state or +hich are not& If the state +ill
continue to collect sales tax, online sellers +ill .ust *ove to other state +here there0s no
i*)le*ented sales tax&
If a co*)any has its cor)orate head-uarters and +arehouse in one state, but has its
electronic co**erce transaction )rocessing syste* located on a server in another state 6or even
the sa*e state, but different country7, thus +ould not sub.ect to tax 69reenstein et al&, ##, )&
16:7& So if the seller has a +arehouse or store in the sa*e state +here the buyer is in, then the
buyer is sub.ect to sales tax& But +hen the seller has a )er*anent establish*ent in the sa*e state
as +here the online selling is located, then the buyer is sub.ect to sales tax&
According to the Startu)5ation, each state has their o+n rules regarding +hat is
considered a taxable )roduct or service and +hat is not& ;our )roducts or services *ay be taxable
in one state, but not in another& In so*e states if you se)arately state ite*s on your invoice they
are not taxable, if you lu*) the* together, they beco*e sub.ect to sales tax 6Startu)5ation,
$arch #8, #87& Every state has there o+n +ay on ho+ to handle sales tax collection& So*e
have i*)le*ent tax la+s +hile so*e +ere .ust letting the* continue to gain revenue&
In conclusion, i*)le*entation of sales tax on internet sales de)ends on the location of the
buyer and if the seller has a )hysical )resence in the sa*e location +ith the buyer& It *ay be
difficult to collect sales taxes on internet sales but there are still states that i*)le*ent these tax
la+s&
<(=>I59 BIB4I(9=A?@;
Bentru*, 2ason and <hatley, 2a*es& Buolding e%Co**erce site +ith the &5ET 'ra*e+or1& Sa*
?ublishing& ##& ?ages #86&
9reenstein, $arilyn and Aasarhelyi, $i1los& Electronic Co**erce Security, =is1 $anage*ent
and Control& Second Edition, $c9ra+%@ill& ##& ?ages 16:&
2ean $urray& (nline Sales Tax % Bac1ground and Issues& A)ril #, #8& biBtaxla+&about&co*/
2anuary #, #1C
5olo& Tax on Internet Sales& 2anuary 1, #11 articles&b)lans&co*/ 2anuary #, #1C
Startu)5ation& Eco**erce Sales Tax 11& $arch #8, #8& startu)nation&co*/articles/ 2anuary
#, #1C