Say goodbye to tax-free shopping on Amazon. A new Amazon sales tax charge went into effect in 45 states as of Saturday, April 1. And, no, this is not an April Fools’ joke.
Normally, online retailers only collect sales tax in states where they have a physical store or distribution center. However, state legislatures are unhappy about this loophole because it costs states millions of dollars. In 2016 alone, states lost out on $17.2 billion in revenue from sales tax, according to the National Conference of State Legislatures.
“The way we are consuming things is so different. Because of that, the states’ sales tax revenue is not keeping pace,” said Max Behlke, director of budget and tax policy for the NCSL. “States have to modernize [sales taxes] to the 21st century. If they can’t collect sales taxes, it’ll mean higher state income taxes or property taxes.”
Amazon Sales Tax Needed For Continued Growth
As of 2016, Amazon collected sales taxes from 29 states and Washington D.C. However, four states—Hawaii, Idaho, Maine and New Mexico—will join the other 29 states in having to pay extra for their purchases. Four other states—Delaware, Montana, New Hampshire and Oregon—do not have sales taxes, so they are exempt from Amazon’s changes. And Alaska allows its municipalities to determine sales tax.
The new sales tax will help generate more money for the states. According to a 2013 estimate reported by Forbes, Maine could increase its revenue by $28 million just from online retailer taxes.
Amazon started adding sales tax to purchases even though neither Congress nor state legislatures have passed laws requiring it. The extra income from the taxes helps support Amazon’s continuously changing service to its customers. For example, two-day and same-day delivery services.
“Their business model has changed. To have same day or next day delivery, you need distribution centers nearby,” said Behlke.
The Amazon Sales Tax Loophole
Buyers still may be able to purchase products from Amazon without having to pay sales tax, though. Thanks to a loophole in online sales tax policy, third-party sellers do not have to charge those taxes to its customers. According to Amazon, they have more than 100,000 vendors that sell more than $10 billion in products each year. And nearly half of the products sold are from those vendors.
So, while sales tax on your Amazon purchases is likely, it is not a guarantee. It all depends on where you live and from whom you buy your products.