Tax-free Internet sales cost local economies millions, say UAB professor

Tax-free Internet sales have cost the United States an estimated $10 billion in 2011, and one UAB professor says the real victim in this situation isn't the IRS.

"These are taxes owed to municipalities, counties and states, which consumers are obliged to report and remit on their state income-tax returns," said Robert Robicheaux, Ph.D., professor and chair of the Marketing, Industrial Distribution and Economics department in the UAB School of Business. "This problem demands immediate attention nationwide because the share of Internet retail sales is growing at such a breakneck pace that the amount of lost tax revenue will be doubled by the end of the decade."

In Alabama, the estimated loss per person is about $30. But when you multiple that by 4.7 million residents, the total loss reaches $141 million.

So how do you know if you owe state sales tax? If you made a purchase online and weren't charged state sales tax at checkout, then you owe.

"Many and maybe most Internet buyers are unaware they have a tax obligation for items they buy online and are not charged state and local sales tax," says Robicheaux. "The failure to collect taxes that are already owed may force local, county and state leaders' to find new sources of revenue to support essential services."

You can offset this Internet sales tax by making charitable donations. If you itemize your taxes, simply make a donation to your favorite charity before Dec. 31. Just be sure to gather the proper documentation to prove how much you've donated.

"I think we should cut the IRS a little bit of slack on this because otherwise taxpayers could just put whatever dollar amount they want on their tax return," says Robert Wilbanks Jr., licensed CPA and instructor at the UAB School of Business. "If you want proof for every penny you donate then pay by check because a cancelled check is an IRS acceptable form of documentation."

The IRS says all records must show the name of the organization, the date of your contribution and the amount contributed. They accept the following as proof:

• Bank record such as cancelled check, bank statement or credit card statement

• Receipt or a letter or other written communication from the charity

• Payroll deduction record including pay stub or Form W-2

The downside is that some charities don't offer documentation, such as the Salvation Army red kettle campaign. There is a trend in larger cities to offer credit card machines or QR codes that you can utilize to help show your donations.

But until those options are offered by every outlet asking for charitable contributions Wilbanks says, "My recommendation is if it is a small amount and it is for a good cause and they don't provide documentation I would just be happy knowing that I gave money to help people in need."

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