April 14, 2006 10:00 AM PDT
This week in taxes
Online purchases from sites like Amazon.com and eBay may seem to arrive in a state of untaxed bliss. But the law actually requires shoppers to pay their own state's sales tax rate--the concept is called a "use tax"--and voluntarily cough up the exact amount owed each year at tax time.
Tax bureaucrats for years have lamented the difficulty of collecting use taxes on catalog and mail-order sales. Now, with online shopping growing rapidly and nearing $100 billion a year in consumer sales, tax collectors are adopting more aggressive tactics.
New York state has added a line to income tax returns requiring all residents to calculate how much they should pay on Internet, mail-order or out-of-state purchases. California has taken its thou-shalt-pay-up warnings to the Internet through banner advertisements on four newspaper Web sites.
CNET News.com readers are not particularly pleased by the use tax.
"If they start enforcing this law, I personally won't buy anything on the Net," wrote one reader in News.com's TalkBack forum. "After all, the only way they can enforce it is to audit people. So the end result will be that if you buy via the Net, you're just asking for an audit. That should be good for business."
Also, Internet shoppers accustomed to tax-free purchases from Apple Computer's iTunes Music Store soon may be in for an unpleasant surprise. State legislatures and tax officials, eager to find new ways to boost government spending and curb budget shortfalls, are eyeing the burgeoning market for digital downloads as a potentially lucrative source of revenue.
A CNET News.com analysis shows that 15 states and the District of Columbia now tax downloads of music, movies and electronic books. Some high-tax states such as California do not levy the same charge on iTunes downloads, but that could soon change.
Is your state at risk for the "iTunes tax"? Democratic politicians in state capitals are more likely than Republicans to permit taxes on digital purchases of songs and movies. A CNET News.com analysis of the states that tax digital downloads, such as those from the iTunes Music Store, shows that nine protax states have legislatures controlled by Democrats. By contrast, five of the protax states have Republican-controlled legislatures.