Tax-Free Internet? Don't Count on It

SAN FRANCISCO (05/01/2000) - Ron Holman of North Attleboro, Massachusetts, was startled recently when he was charged sales tax for a shrink-wrapped copy of Norton SystemWorks 2000 he ordered from Symantec Corp.'s Web site. Says Holman, "I was under the impression that Internet sales are not taxable."

Like most tax matters, it's not that simple. "Sales tax for items purchased online works exactly like it does for [other] mail-order purchases," says Heather Rosenker, executive director of the Advisory Commission on E-Commerce in Washington, D.C. "Under existing sales tax law, if you buy a product from a company that has a physical presence in your state of residence, you will be taxed at that state's rate." Because Holman lives in Massachusetts, where Symantec has offices, he was charged that state's tax of 5 percent. Adding to the confusion, many Web stores don't add tax to the total when you're checking out; you may only see the tax on your credit card statement.

Some companies with facilities in many states sidestep sales taxes by setting up separate companies to handle e-commerce. For instance, Barnes and Noble's Web site is a separate corporation, so only residents of the four states where has warehouses and offices are charged sales tax for online purchases.

However, all states that charge a sales tax have a use tax, which taxes items bought outside of the state, including online purchases. But collecting this tax has been difficult, especially since many taxpayers don't even know about it. "I refer to it as a forgotten tax," says Bert Whitehead, tax attorney and president of financial advisor firm Cambridge Advisors.

If you're dead set against paying tax when shopping for software, there is a loophole: download the software. Taxes can be applied only to physical products.

Letter of the Month

I received a bill from Dell Financial Services (the company that handles leases for Dell Computer) for $462.32, which I assumed was the "fair market value" for my leased PC. But when I called DFS, I was told that I owed this amount for keeping the PC three months past the lease's expiration. I asked why I was not notified that my lease had ended, and was told, "It's in the contract you signed." With my other leases, I receive a notice before expiration.

Scott D. Harrison

Hoboken, New Jersey

On Your Side responds: Lindsay Maresh, senior corporate communications analyst at Dell Financial Services, declined to clarify the company's policy regarding notification of lease expirations. However, a DFS customer support representative confirmed that keeping track of the expiration date is the leasee's responsibility. (By contrast, Gateway and Micron alert customers well before a lease ends.) Harrison has reluctantly accepted DFS's offer to forgive him two months' leasing fee if he buys the PC. The lesson? Before signing a lease, read the fine print.

Heads Up: Update: Last December, we reported on a reader who was overcharged $100 by, a Web site that sells videos and DVDs.

Since then, I've heard from more readers who say they have been similarly burned by and, an affiliated site. My e-mails to both sites went unanswered, and phone numbers listed on the sites weren't functioning. However, at press time, both sites were still taking orders. Buyer beware... Beef Central: Got a consumer gripe but don't know where to turn? Try, a new Web site that lets you air grievances online and fire them off to the folks who are at fault. Templates guide you through writing a complaint; the site also offers consumer news, tips, and resources, as well as product and service ratings... As Seen on TV: I've gotten more than a dozen letters from disgruntled customers of Video Computer Store/Computer Personalities, a reseller that hawks computer products on television infomercials. Complaints include shipping delays, incomplete orders, and outdated items being sold as new. The company says that these are isolated incidents, but if you are tempted during late-night channel surfing, consider catching the next wave over to Conan.

Or a great one? E-mail the details to We'll investigate complaints and publish items of the broadest interest. Anne Kandra is a contributing editor for PC World.

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