Beginning Saturday, September 15, 2012, Amazon and many other internet retailers will have to begin charging California sales taxes on customer purchases shipping to the State of California from their website. Especially for those of you who make frequent purchases online, this will be a significant added cost for you or your business. Depending on where you live, the costs for these purchases will go up between 7.25% and 9.75%.

State law mandates that these uncharged State sales taxes should have previously been reported as a use tax on an individual’s annual state tax return. In reality, most consumers are not reporting use tax for online purchases, which costs California and other states billions of dollars a year.

Many California businesses will be happy with this ruling, which now places Amazon on equal footing with them in having to charge sales tax in the State of California. Prior to this ruling, Amazon’s ability to avoid charging sales taxes had given it a huge competitive advantage over its brick and mortar competitors. Best Buy, for example, has had problems with customers checking out products in its stores, and then going on to Amazon to purchase the products. For a $1,000 computer purchase, this would have saved a California consumer at least $72.50 in taxes, assuming that they did not later pay the use tax. You may even be a consumer that has taken advantage of this tax savings yourself.

You may want to keep the “Amazon Law” in mind when budgeting for purchases in the future. It will be interesting to see the effect on retail store purchases. But if driving to a retail store is not your thing, you will now pay sales tax and shipping when making online purchases.

For assistance with your sales tax returns or information on sales tax reporting, please give us a call at 866-631-3470 to schedule a complimentary consultation with one of our accounting professionals.

 

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