Iowa Online Sales Tax Loophole Closed

(SIOUX CITY, IA) The era of tax-free shopping online for Iowans is starting to wind down. Iowa is joining the growing number of states that'll tax more of your on line purchases.

As of July 1st any business that has a physical presence in the state will have to charge Iowa's sales tax when it comes to on line purchases. Governor Terry Branstad says the e-fairness legislation will level the playing field for Iowa Businesses.

It's pretty easy to buy a television or a pair of headphones online with the click of a button and right now if you buy from company websites like Amazon you'll be spared the state sales tax.

"A company that sells things strictly through a catalog or over the Internet or by phone doesn't have that presence. When people buy something from them they don't have to collect the sales tax and so they automatically have a competitive advantage," says Victoria Daniels, who's with Iowa's Department of Revenue.

Right now if a company has "nexus" or a physical location in the state, it is required by law to charge a state sales tax. But a loop-hole in the system allowed some businesses like Barnes and Noble for example, to get around that.

"They had a separate subsidiary called Barnes and which said we don't have a physical presence in the state, so therefore we don't have nexus and we shouldn't be required to collect your sales tax," says Daniels.

A Judge ruled against that company. Governor Branstad has now signed the e-fairness law that clearly defines what nexus is.

Before the E-fairness legislation was passed Best Buy could sell a pair of headphones in its store while an online company could sell the same headphones without charging a sales tax.

And if they don't fall under "nexus" those online companies can continue doing that which is why the U.S. Senate passed a similar measure that would require all stores, regardless of physical presence like Amazon, to charge the appropriate state sales tax.

Some people like the idea while others don't.

"I think its good for small business and I think we need to do everything we can to help small businesses because it does level the playing field for people who don't have the corporate structure in order to get away from paying that tax," says Melodee Younts.

"If I'm doing it online, if there isn't one around me and I don't have any other options but to do it online, I would prefer not to have to pay the tax on that," says Laura Giese.

Iowa lawmakers still don't know what the fiscal impact will be now that the e-fairness law has passed.

Again, Iowa's E-fairness law goes into affect July 1st. The measure that passed through the U.S. Senate is now moving to the House for consideration.