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Online Sales Tax Loophole Costs State Millions

November 17, 2011, 6:00 PM by Don Jorgensen

Online Sales Tax Loophole Costs State Millions
SIOUX FALLS, SD - The holidays shopping season is here and thousands of you will buy some of your gifts online this year.
But when you do that, the state misses out on millions of dollars in sales tax money. That's why there's currently a bill in Congress to change that.

When shoppers, like June Kelly, buy something at the Empire Mall in Sioux Falls, they pay a six percent sales tax on that item.

Kelly admits she does a lot of online shopping and saves money while doing it because most of the time, she doesn't have to pay any sales tax. 

"I have noticed, but it doesn't make any difference to me.  I'd rather shop online then deal with the crowds at the mall," Kelly said.

Under current law, retailers that aren't physically located in a state but offer deals online, don't have to collect the state's sales taxes.  That can really add up if you're talking big ticket items.

The South Dakota Department of Revenue estimates it loses out on $38 to $39 million of uncollected sales taxes every year.

That's upsetting to shoppers like Sheila Healy of Sioux Falls who says the state could use that money for education or other areas. 

"I don't believe you should be able to avoid sales taxes by shopping online simply because I believe you need to support your local community," Healy said.

When someone buys online, retailers are also missing out on revenue. They point out that online sellers have a distinct advantage over stores on Main Street or at the mall that must charge state and local sales taxes in jurisdictions where they have a physical presence. 

"I think anybody in the shopping center or retail business would support this kind of legislation because it levels the playing field between online and brick and mortar," Dennis Gilliam of the Empire Mall said.

Best Buy, Target and other large chains are lining up behind the bill to allow states to require all online retailers to collect sales taxes.

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