When Do You Have to Pay Sales Tax on Internet Purchases?

Use Tax Obligations

If you live in a state that has a sales tax and you purchase items on the Internet that would normally be taxable in your state, you are responsible for paying the tax. If the online vendor does not charge you the sales tax, you must keep records of your purchases and pay the tax directly to the state. When you as the buyer pay the tax it is referred to as a "use" tax rather than a "sales" tax, which would be collected by the seller.

Many states now have a separate line on their state income tax forms to collect sales tax on Internet purchases you've made over the past year. You would need to keep records and report the sales tax when you file your annual state income tax return. Other procedures apply in states that do not have a state income tax. In Texas for example, if you have a sales tax permit and purchased goods on the Internet that are subject to use tax, you must report the purchases on line 3, "taxable purchases" of your Texas sales tax return. If you do not have a Texas sales tax permit, you would have to report your purchases on form 01-156, Texas Occasional Use Tax.

As indicated in Tax on Internet Sales by Nolo, some Internet sellers collect sales tax and some don't. But the obligation to pay the sales tax is determined by the location of the buyer, not the seller. Based on a Supreme Court decision in Quill vs. North Dakota in 1992, if a business does not have a physical presence in a state, such as a store or warehouse, it is not required to collect sales tax from customers in that state. This decision involved a mail order company, but the same principal has been applied in practice to Internet sales. Therefore, an Internet seller may collect sales tax, but only in states where it has a physical presence. But this does not exempt you the buyer from your use tax obligation if you are located in some other state.