NC Budget and Tax Center

Sales tax to be paid on online shopping via Amazon starting next month

In case this news hasn’t reached readers, North Carolina residents should expect to begin paying sales taxes on their online purchases through Amazon.com (Amazon), the online retailer, beginning next month. Come February 1st North Carolina will become the 20th state in which Amazon collects a sales tax on online purchases.                

Since Amazon does not have physical, brick-and-mortar stores or operations here in North Carolina, the company is not required by law to collect a sales tax on online sales made to North Carolina residents. North Carolina taxpayers are supposed to voluntarily report their online purchases on their state income taxes and pay a “use tax”, but it appears that few taxpayers do so considering the significant loss of revenue for the state, as well as for cities and counties.

The NC Department of Revenue estimates that the state loses as much as $214 million in online sales taxes each year, according to a news report. This revenue loss is equivalent to eliminating mandated “flexibility cuts” within the UNC system for the current academic year, doubling need-based grant aid available to students, and eliminating the tuition and fee increases at community colleges for the current academic year.

Amazon’s decision to collect a sales tax in North Carolina is likely welcomed news for retailers with brick-and-mortar stores in the state. These retailers have long deemed companies that don’t collect a sales tax on their online sales as having an unfair advantage over them in the market place. Collecting a sales tax on online purchases also better aligns tax policy with an economy in which consumers have increasingly engaged in online shopping to buy goods and services.

This voluntary move by Amazon does not mean that other online retailers that don’t have a physical presence in the state are required to collect a sales tax on online purchases made by North Carolina residents. The U.S. Congress considered legislation last year that would require all online retailers to collect and remit sales and use taxes to states. The bill is still pending however. We’ll just have to wait and see if other online retailers follow Amazon’s lead.

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