Just in Time for the Holidays: NJ to Start Taxing Online Shopping
Earlier this year the U.S. Supreme Court ruled that states are able to collect sales tax from online retailers the same way they do from stores in malls and shopping centers.
Beginning Thursday, New Jersey will begin to collect sales tax from all internet retail companies, which is expected to generate at least $212 million in revenue this year and even more in the future.
According to John Holub, the president of the New Jersey Retail Merchants Association, the new law is “a tremendous victory for all main street retailers, because it finally levels the playing field.”
“For too long online only retailers have been exploiting a loophole and using it to their competitive advantage to not collect sales tax, when in fact a sale is a sale and sales tax is owed.”
He said some consumers knew they weren’t paying sales tax “but a whole host of folks didn’t realize the sales tax wasn’t collected and actually were essentially becoming tax scofflaws because of this. So this is just leveling the playing field.”
Online companies will begin collecting 6.625 percent sales taxes on purchases beginning Nov. 1.
Until now, the law required consumers to declare the taxes on online purchases on their personal income tax forms. But Holub said just 1 percent of consumers bothered to do that.
“A lot of our members, they can compete on price any day of the week. It was that extra little 6, 7 percent advantage these online only guys were having that could have been make or break for if they made money on a product or not," Holub said.
Rutgers economist James Hughes said the extra sales tax revenue will help the state’s fiscal situation marginally, and it will level the playing field. But online shopping is easy and convenient.
“I don’t think it’s going to have a dramatic effect on bricks-and-mortar retailing. It’s not going to be a bonanza for our boots on the ground stores," Hughes said.
“I think the handwriting is on the wall, and as technology improves in the future, the advantages of shopping online are only going to increase.”
Hughes noted every little helps when it comes to generating revenue for the state but “it’s not transformative. It’s not transforming the state’s fiscal condition from shaky to solid.”
A report by the federal Government Accountability Office predicts the amount of sales tax collected from online retailers could grow to about $350 million a year in the not too distant future.