February 5, 2003, 12:00 AM

Online sales tax to be SOP in 3-5 years, Jupiter predicts

Even though online sales tax will become standard operating procedure, that won’t discourage online shoppers from buying – only 9% choose an e-retailer based on whether or not it collects sales tax, Jupiter reports.


While it’s likely that states and local taxing bodies will extend sales tax they already collect on retail transactions to online sales within five years, that won’t impede online retail’s growth, according to new data from Jupitermedia Corp.’s Jupiter Research.

That’s because most online shoppers either aren’t aware that sales tax can be avoided by searching across multiple online retailers, or don’t see it as a reason to choose one online retailer over another, according to findings from a consumer survey Jupiter conducted in November.

Only 46% of those surveyed knew that sales tax could be avoided depending on what retailer they chose to purchase from, and of those that were aware, 61% said they don’t go out of their way to find online retailers that don’t charge sales tax. Another 30% said they sometimes seek out a retailer that doesn’t charge sales tax online, while 9% said they always look for retailers that don’t charge sales tax online.

According to Jupiter, the collection of sales taxes online is no longer a question of if but one of when it will become standard practice among online retailers. “With budget deficits on the horizon, state and local governments have stepped up efforts to collect sales tax from online retailers,” says Jupiter analyst Ken Cassar.

Currently, retailers are not required to collect sales tax from out-of-state shoppers. Under a 1992 U.S. Supreme Court ruling, state and local taxing bodies cannot require out-of-sate retailers to collect the tax because the complexity of collection places an unfair burden on the retailers. However, states are beginning to simplify their sales tax systems so as to remove that barrier to out-of-state sales tax collection.

In the meantime, some multi-channel retailers have kept online and brick and mortar businesses separate specifically so that the presence of stores in a state would not constitute a physical, taxable presence that would require residents of the state to pay a sales tax when buying from the retailer’s online channel.

“The downside is it’s forced the retailers to hold off on developing integration among channels,” says Jupiter analyst Julie Deeks. That means retailers are doing without the benefits of such integration, which include, for example, integrated returns functionality, integration of purchase data across channels, and better coordination of marketing across channels, adds Deeks.

But retailers’ concerns that charging sales tax would discourage online purchases are largely misplaced, Jupiter’s data suggest. “Among those who are aware that sales tax can be avoided, only 9% of consumers actually make merchant selection decisions based on whether or not that retailer charges sales tax,” says Cassar. “The benefits of multi-channel integration overwhelmingly outweigh the importance of sales tax avoidance.”


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