Taxes work very differently over in the US compared to the UK, with some online retailers choosing to sell goods tax-free at the point of purchase. Newegg is one such retailer, allowing buyers to save in the short term under the proviso that they report purchases made to their state’s tax authorities in order to pay what they owe. There was a loophole in this system though, as it operated primarily on an ‘honour’ basis, allowing some to avoid reporting purchases at all. That changed this week, as Newegg handed over its customer data for residents of Connecticut, who are now receiving tax bills for purchases dating as far back as 2014.
Here in the UK, we are used to paying sales tax at the point of purchase through VAT charges. In the US however, sales tax varies from state to state, placing the onus on the consumer to report purchases made and pay any sales tax owed after the fact. The Department of Revenue Services (DRS) in Connecticut has recently begun cracking down on those avoiding sales tax, asking major online retailers to hand over customer data so that they can begin collecting money from them. In the case of tech retailer ‘Newegg’, this involves sales made from 2014 through to the end of 2016.
This caught shoppers by surprise as there was no warning that this was coming. One particular Reddit thread criticised Newegg for handing over data without seeking customer permission. In addition there is some shaky legal ground on whether or not out-of-state companies are required to hand over customer data to state officials. Either way though, Newegg’s hands were tied, as ignoring the request from the DRS could have had legal percussions later down the line.
In Connecticut, the sales tax is currently 6.35 percent, so if you spent $1000 on Newegg between 2014 and 2016, and didn’t report the purchase at the time, you would now owe the state around $157. The real lesson here is to keep everything above board, if you made a tax-free purchase online in the US, the DRS will likely find out about it as more retailers hand over their customer information. Connecticut might be one of the first states to begin collecting data from online retailers, but it is possible that more will follow.
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KitGuru Says: As a freelancer in the UK, I thought our tax reporting scheme was somewhat complicated, but it sounds even worse in the US. As always, it is best to use some caution, after all, there are penalties in place for tax evasion.