Amazon to collect state sales tax marking the end of tax-free shopping experience

E-commerce giant Amazon has announced its plans to start collecting sales tax, marking the end of the day when shopping tax is free. It will collect sales tax in the four states that include Hawaii, Idaho, Maine and New Mexico.

Previously, Amazon didn't implement the sales tax on the above-mentioned states. Four other states such as Delaware, Montana, New Hampshire and Oregon, currently don't have sales tax while Alaska doesn't have a statewide tax but have a municipal sales tax, instead. This is according to a report by CNN Money.

Normally, online retailers don't collect sales tax. That weighed heavily on the states, costing them $17.2 billion in lost sales tax per year as per the National Conference of State Legislatures. "The way we are consuming things is so different. Because of that, the states' sales tax revenue is not keeping pace," Max Behlke, director of the budget and tax policy for the NCSL, said.

"States have to modernize [sales taxes] to the 21st century. If they can't collect sales taxes, it'll mean higher state income taxes or property taxes." Meanwhile, brick-and-mortar retailers have long raised the matter at hand and argued that it is unfair to implement the sales tax on their part but not on the online retailers such as Amazon. That created an edge on sales tax-free online retailers.

Amazon was notably one of the leaders in keeping online purchases tax-free. As the company moves to offer faster deliveries, it expanded its distribution centers and started collecting sales tax in more states. Behlke notes the change in its business model and adds that for consumers to receive their online purchases on the same day or the next day, distribution centers are needed nearby their place.

Amazon has collected sales tax in 29 states by the end of last year. This means that it was effectively collecting sales tax from 86 percent of the US population. Amazon is currently adding the remaining states to its list and hopes to collect sales tax from 45 states by April.

One loophole left on Amazon is that shoppers don't have to pay sales tax when they buy from one of its third-party vendors. Nearly half of the items sold on Amazon are from its third-party vendors.