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TAX MAN GRABS YOU FROM CYBERSPACE
MORE ONLINE SHOPPING SITES ARE CHARGING SALES TAX

One of the perks of Internet shopping has been not paying sales tax.

Consumers take a certain glee in denying state and local governments any of their hard-earned cash. Offsetting some of those savings, you might have to pay some shipping and handling to have your purchase delivered to your doorstep -- but at least that saved you a trip to the store.

But the days of a tax-free Internet may be coming to an end -- and at the same time that New York State is raising its sales tax. Beginning June 1, consumers in Erie and Niagara counties will have to pay 8.25 percent instead of 8 percent on taxable items.

In February, some of the nation's largest retailers -- including Wal-Mart and Toys R Us -- began charging sales tax for online purchases. By charging sales tax, the chains can allow shoppers to return items bought online to a local store. "We wanted to make sure our guests had the ability to return right to the store," said Susan Laughlin, a Toys R Us spokeswoman. "That's something our customers kept asking us for."

Both Wal-Mart and Toys R Us declined to say how much additional sales tax revenue the new policy has generated for state and local governments.

A consumer's experience and comfort level with online shopping will influence his or her attitudes towards paying sales tax for purchases made online, said Bruce D. Weinberg, associate professor of marketing and e-commerce at Bentley College in Waltham, Mass.

"I think once shopping online has become a typical, regular, accepted alternative for someone, I'm not so sure they notice the sales tax as a big deal," he said. "Online shopping is still a small portion of retail sales so that still leaves a large majority for whom this could have an impact on their decision to shop online."

However, there are still many Internet sites that are not collecting sales tax. But raising the state and local sales tax to 8.25 percent isn't likely to drive consumers to shop online in droves, said Eugene Fram at the Rochester Institute of Technology.

"The sales tax issue, except on very large purchases, will not be a large issue," said Fram, the J. Warren McClure Research Professor of Marketing. "We tend to think the consumer buys on a rational basis, but there's also the emotional involvement and time-compressed lifestyles. People can't get to the store tonight so they'll sit at their computer at midnight right before they go to bed."

Internet sales are still only 2 percent to 5 percent of all retail sales. However, it's a fast-growing segment.

Online sales reached an estimated $76 billion last year, up 48 percent from the prior year, according to an annual study by Forrester Research done on behalf of Shop.org, the online retailing division of the National Retail Federation. Online sales are expected to reach close to $100 billion this year.

Kelly Asher, a downtown Buffalo office worker, buys everything from her groceries to books online. She recently saved $7, even with shipping charges, on a George Foreman Grill.

"Sometimes you can get a very good deal because you cut out the middle man and the sales tax," she said. "Eight percent is a lot. That's a lot of money when you're talking about big-ticket items."

With three children, Asher is always looking to save money and said she'll probably shop online more because of the higher sales tax. She's currently looking at buying a computer and will probably purchase it online to get the best price and avoid sales tax.

The rules regarding sales tax on the Internet are confusing. A 1992 U.S. Supreme Court decision says that states can collect sales tax from companies that have a physical presence in the state -- such as a store, warehouse or call center. That's why Barnes & Noble's Web site charges sales tax in New York State, but Amazon.com does not.

And now that Sears owns Lands' End, consumers will have to pay sales tax on all catalog and Internet orders because Sears has stores in all 50 states.

And the sales tax is calculated after shipping and handling are added to the order. For example, if you walked into Barnes & Noble and bought the new Harry Potter book for $18, you would pay $1.44 in sales tax. Buy the book online where shipping and handling are $4 and the sales tax rises to $1.76.

To make the waters even muddier, there's a little-known and rarely enforced law on the books called the "use tax." It says that when consumers buy something online and do not pay sales tax, they're supposed to fill out a form and send the state a check for the sales tax they owe.

But at least 35 states have joined a coalition called the Streamlined Sales Tax Project, which is trying make sales tax laws consistent across states in the hope that Congress will adopt legislation to allow states to collect sales tax on all online purchases.

e-mail: lhaarlander@buffnews.com

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