Which Online Retailers Charge Sales Tax in Your State?

By Louis DeNicola, Cheapism.com

The Internet has made it so easy to sit home and shop. You can click on hundreds of online stores, browse categories, read gift guides, and find coupon codes. Some shoppers buy online because it�s a way to dodge taxes and save a few bucks. Depending where you live and which online store you buy from, you may avoid the sales tax blues.

Some state laws require retailers to collect sales tax on orders shipped into those states where they have a physical presence. This includes merchants with both online and offline platforms, such as Walmart, and online-only retailers like Amazon that have warehouses or fulfillment centers in a given state. A New York State law enacted in 2008 that spurred a series of court battles highlights the importance of affiliates ( referring partners and third-party sellers) in the sales tax equation. This and similar statutes dubbed "Amazon laws" enacted elsewhere require online vendors to collect sales tax in states where affiliates are located. For example, a website based in New York that sends customers to Amazon and makes money from the referral constitutes an Amazon presence in New York. The New York law was upheld in lower courts, and the U.S. Supreme Court recently decided to pass on appeals by Amazon and Overstock.com. Still, challenges to the laws have succeeded elsewhere, as in Illinois.

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With e-commerce sales totaling billions of dollars there is a lot of tax revenue on the line. Although consumers are required to report purchases and pay the requisite taxes when filing state income tax returns every year, few people do. (Amazon sends reminder emails with the grand total purchase amount to residents of states where it does not collect taxes.) The National Conference of State Legislatures estimates that states lost more than $23 billion in 2012 alone due to unreported purchases. A proposed federal law called the Marketplace Fairness Act may alter the sales tax landscape, but until then online retailers will continue to collect state sales taxes only where they have a "nexus" (minimally, a physical presence of some sort, but the full definition varies by state).

Below we've listed several of the largest online retailers, the states in which they collect taxes on purchases, and the combined state and average local tax rate, as reported by the Tax Foundation.

Amazon. The largest online retailer, Amazon collects taxes on orders shipped to 16 states. Amazon has agreements with several states, including South Carolina and Tennessee, allowing the company to delay collecting taxes until 2014 despite the presence of warehouses.

  • Arizona (9.16%)
  • California (8.38%)
  • Connecticut (6.35%)
  • Georgia (6.99%)
  • Kansas (8.25%)
  • Kentucky (6.00%)
  • Massachusetts (6.25%)
  • New Jersey (6.97%)
  • New York (8.48%)
  • North Dakota (6.52%)
  • Pennsylvania (6.34%)
  • Texas (8.14%)
  • Virginia (5.00%)
  • Washington (8.86%)
  • West Virginia (6.04%)
  • Wisconsin (5.43%)

Overstock.com. Although Overstock originally sold excess and returned merchandise, it now offers new goods and items created specifically for Overstock. The site also features daily deals and in 2007 began O.co Cars that sells vehicles at "pre-negotiated, dealer-discounted pricing." Taxes are collected in three states.

  • Illinois (8.13%)
  • New York (8.48%)
  • Utah (6.67%)

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Rakuten.com. Rakuten is the largest e-commerce site in Japan and has been growing in the United States since acquiring Buy.com and rebranding the site. Shoppers earn "super points" when making purchases that can be put towards future orders. Taxes are collected in nine states.

  • California (8.38%)
  • Connecticut (6.35%)
  • Illinois (8.13%)
  • Massachusetts (6.25%)
  • Minnesota (7.16%)
  • Missouri (7.00%)
  • Tennessee (9.44%)
  • New York (8.48%)
  • Washington (8.86%)

Newegg.com. A technology-focused online retailer, Newegg sells hardware and software for computers as well as video game-related products and cell phones. The site has expanded into automotive parts, office supplies, and even some sporting goods and jewelry. Newegg only collects taxes on orders shipped to three states.

  • California (8.38%)
  • Tennessee (9.44%)
  • New Jersey (6.97%)

ThinkGeek.com. A great source for gifts for geeky friends, ThinkGeek sells t-shirts and all sorts of geek-related products. Offerings range from an R2-D2 nutcracker (think Christmas), a Doctor Who toothbrush holder, and a Star Trek pizza cutter. ThinkGeek collects taxes on orders shipped to five states.

  • Florida (6.62%)
  • Minnesota (7.16%)
  • Ohio (6.80%)
  • Virginia (5.00%)
  • Washington (8.86%)

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Ebay.com, Etsy.com, and other Marketplaces. These two sites are marketplaces and the tax rules vary depending where the sellers live and whether they have affiliates working for them. If a seller resides in the same state as the buyer, the seller must collect taxes on the order. In states with "Amazon laws," sellers with affiliate relationships there are required to collect taxes on orders. The amount of the tax depends on the destination; a list of state taxes and average local taxes is available here.


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