Analysis: Who Actually Owes State Sales Tax? Hint: It's Not Retailers
Don’t say this too loudly: The goods you buy online and through mail-order catalogs from out of state are not tax free. It’s just that the state has a hard time collecting the taxes that are due.
Retailers do not pay sales taxes. Consumers do. Retailers just collect them and remit them to the state.
And not all retailers are required to play. Texas has no way to force sellers in other states to collect taxes. The retailers that are not required to collect the taxes — a group that includes out-of-staters who sell online and through mail-order catalogs — are not the ones violating state tax laws.
Consumers are the deadbeats, and hardly anyone in politics wants to go door to door to straighten them out.
The state would have had an additional $1.78 billion in 2012 — without a tax increase — had it been able to collect the amount owed on online and catalog sales, according to the National Conference of State Legislatures.
Texas, like many other states, has a use tax. You have probably seen this and read right over it, as in the phrase “sales and use tax.” It means that if you live in El Paso and drive a couple of miles across the state line to buy something in New Mexico — a sofa, for instance, for your living room in El Paso — you owe Texas a use tax on that sofa.
Hardly anybody seems to know this. Lt. Gov. David Dewhurst, back when he was the state’s land commissioner, got into a flap with the state comptroller’s office over things he bought in other states for use here. They billed him for the taxes due, alerting him to a levy he apparently did not know he owed. For some time after that, he would periodically ask visitors whether they had ever heard of such a tax, seeking sympathetic ears for his experience with the long fingers of the state government’s tax collectors.
He paid the tax, but many people do not. The state often does not know about their purchases. It would cost too much to send tax collectors door to door to find out what you bought, where you bought it and whether you ever paid sales or use taxes on everything. The estimates of what the state loses in revenue to internet and mail-order sales are just another way of saying how much use tax is not being paid by Texans who owe it.
The state comptroller of public accounts collects sales taxes, and has an explanation of use taxes online. The answer for Texans who buy things via mail-order or online: “If you purchase merchandise through a catalog or the internet from a seller located in Texas, you owe Texas sales tax on the purchase. If you purchase merchandise through a catalog or the internet from a seller located outside of Texas and use the taxable item in Texas, then you owe Texas use tax on the purchase. If the out-of-state seller does not have a Texas permit or does not collect Texas use tax, the use tax is due and payable by the purchaser.”
Retailers have to do that only if they have buildings or physical operations in the state. The tax lawyers call it nexus. One of the best-known online retailers, Amazon, did not collect sales taxes in Texas for years — until the company opened shipping warehouses here and the state pressed it to start collecting taxes. They worked that out, and Amazon now adds sales taxes to Texas orders. Other retailers do not.
It is apparent from the numbers that many Texas consumers do not pay sales and use taxes on their own. Texas and other states have been trying for years to get the federal government to set up a system to get retailers all over the country to collect the taxes and remit them.
They have not succeeded, and the idea is not without controversy. Retailers think they are losing sales to competitors who do not collect taxes; after all, that looks like a discount to consumers. And some politicians, like U.S. Sen. Ted Cruz of Texas, deride the federal effort as an idea that is good for big retailers that can handle the extra paperwork required and bad for small ones who cannot.
In the meantime, Texas consumers benefit to the tune of almost $2 billion annually, unless they volunteer to pay the state — or get caught.