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North Carolina wants a piece of digital sales

Most consumers would agree that they are taxed enough. Those who happen to live in a state that has a state income tax are taxed even higher than some consumers in America are. One of the few respites from sales tax has long been online purchases through companies who don’t have a physical presence in the state the consumer lives in.

Massive online retailers like and Apple, owner of iTunes, have spent a considerable amount of time and money fighting attempts by various states to tax digital sales. New York State passed a law that forced Amazon to add sales tax to orders for consumers in the state. Amazon filed suit against the state on the grounds that it had no physical presence in New York State, a concept called "nexus" which previously had protected online firms against such taxation. However, Amazon ultimately lost the suit because New York State was able to prove that by soliciting affiliates in the state it was effectively doing business there.  In losing, a legal precedent was set which promised to potentially undo nexus protections for online retailers across the country.

Apple's iTunes store has also drawn the eyes of lawmakers in various states looking to add tax revenue to their state coffers, inspired by recent successes. New York State was again at the forefront of the case when it tried in December of 2008 to force Apple to collect sales tax on digital sales from iTunes.

Other states are looking at the success New York State has had with getting money from digital sales and want a piece of the action. A legislative commission in North Carolina is looking at methods that could be used to tax digital downloads from sources like Amazon and iTunes.

The committee is attempting to "modernize" the North Carolina tax code, which was written long before the advent of digital sales.

Rep. Paul Luebke describes, "We used to think of everything in terms of being tangible. Nobody thought of how you could possibly download anything."

At this point, taxing digital downloads is still nothing more than a proposal and is far from becoming law. However, changes proposed by the general assembly could affect how tax laws in North Carolina are written in the future.

Luebke continues, "So if you buy a book in a bookstore, you're going to have to pay sales tax on it," Luebke said. "If you're downloading a book from a book seller, you should have to pay sales tax on that as well."

According to research taxing digital sales of music, books, movies, and software could add about $12 million to state tax revenues over the next fiscal year. That is a temptation that the state isn’t likely to pass up, considering that North Carolina is faced with a $2 billion shortfall in its budget.

CEO of the North Carolina Technology Association Brooks Railford disagrees with the proposed digital sales tax. Mr. Railford states, "We would be concerned about any kind of new taxes in this economy. The consumer is already very highly taxed, the economy is stretched. All we're asking is that those considerations be taken carefully and that the industry be asked for their input as the legislation is finalized."

One of Railford's major concerns is the impact on sales of digital good to the companies who sell them. The lack of sales tax online is often one of the key reasons consumers buy online rather than in a retail store. Adding sales tax could have a major detrimental effect on online retailers.

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RE: Hey, North Carolina...
By Oregonian2 on 1/29/2009 11:09:01 AM , Rating: 2
The download should be taxed if it is downloaded from a company with a physical presence in the same state (and there is a sales tax in that state -- my state has no sales tax so this is all moot for me).

Problem has to do with states taxing interstate commerce which at least in the past was illegal for them to do. Not their jurisdiction.

RE: Hey, North Carolina...
By theapparition on 1/29/2009 12:35:20 PM , Rating: 2
I have to say this is shoddy reporting at it's best, along with most other media outlets. Despite what everyone believes, internet purchases are not tax free. That is completely false and tax is almost always due on purchases.

Problem has to do with states taxing interstate commerce which at least in the past was illegal for them to do. Not their jurisdiction.

Part of this statement is incorrect. States that charge a sales tax cannot legally force companies with no physical presence to collect the sales tax. However, most states require residents to then pay that tax. Some states require this during state income tax returns, others have mechanisms based on the "honor system" for paying tax. So in effect, states do tax interstate commerce.

In other words, the tax is still owed to the state, but that the state cannot legally force out-of-state companies to collect it like they do local merchants.

An excerpt from wikipedia: (<-I know, but it's still correct)

Tax-free shopping is a privilege enjoyed by all residents of United States jurisdictions without sales taxes, but through so-called "remote" sales -- including sales to visiting out-of-state residents, sales via catalog, and sales via Internet -- customers in a sales taxed jurisdiction may also make purchases in sales tax-free jurisdictions, notwithstanding the legal requirement to pay the equivalent (compensatory) use tax in their home state. Delaware is free of all sales taxes, including homes and cars (providing you can prove residency). For example, merchants in tax-free New Hampshire regularly advertise to residents of adjacent Massachusetts, Vermont and Maine the benefits of purchasing goods without sales tax, ignoring the fact that there is no general exemption from the use taxes when the goods are taken back home. Many purchasers are unaware of the obligation to pay the tax, or file the necessary return, or of the fact that it is not the duty of a merchant to collect it from them and pay it indirectly. However, it is the purchaser's obligation to pay it directly to the state, often in connection with filing their annual income tax return.

It just bugs me that everyone talks about tax free internet shopping, but that is just a fantasy. I know I pay my fair share of "tax due for out-of-state purchases". Does anyone else?

RE: Hey, North Carolina...
By Denithor on 1/29/2009 2:22:57 PM , Rating: 2
I've often wondered why they don't treat online sales as a sale within the state where the seller is located. Take Newegg, for example: located in California, when you make your purchase they would collect CA sales tax on the transaction.

This would be just like when I travel out-of-state and make a purchase in another state - the tax is collected at the point of sale and goes to the local governing body. This would also make it possible to collect appropriate taxes from international buyers, they would simply pay the local taxes like anyone else on the purchase.

To me this model makes a lot more sense than trying to collect sales tax based on where you live, where the package will be delivered, etc.

"Let's face it, we're not changing the world. We're building a product that helps people buy more crap - and watch porn." -- Seagate CEO Bill Watkins
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