Use tax a widely broken law

[azanon]

I sometimes wonder if many people at all abide by the use tax laws. For instance, in the state of arkansas, if you buy something out of state, such as on the internet, and said business doesnt charge you tax (and, typically, they won't if they dont have a business in AR), then you are supposed to file a form to pay "use tax" since techically/legally, you still owe state sales tax despite having bought the item out of state.

Are you guys aware of this? Is this law just largely being ignored? What kind of risks does one take by just not paying it?

Azanon

 

[justin]

My state, NC, has a use tax that you are supposed to pay every year when you file your state income tax.

If you don't know what you bought out of state, you can just pay a flat percentage of your income. Something like 0.06%.

But, you can offset this tax burden by any out of state tax you did pay. Presumably hotel taxes, rental car taxes, sales tax, etc. I always spend more in tax out of state than my use tax burden (by a long shot). So I pay zero use tax.

 

[maddythebeagle]

Our state has enforced this through online companies. One out of state place was selling cigarettes online to avoid the taxes (great idea for a small business (. That didnt go over very well. As far as going after individuals, there is no way to enforce this that I am aware of. It is the honor system

 

[Martha]

Minnesota has a line on their income tax form to report out of state purchases where no sales tax was paid.

Hard one to audit.

Probably one of the most common areas where people cheat on their taxes.

 

[eridanus]

Haven't the Supremes disallowed this? The feds control inter-state commerce; states can not tax it.

 

[azanon]

I'm confident use tax law is alive, and well in the State of Arkansas. Otherwise, i wouldn't have even started this thread.

 

[Martha]

Haven't the Supremes disallowed this? The feds control inter-state commerce; states can not tax it.

Nope. A state however cannot directly tax a merchant that doesn't have a presence in the state. But they can tax you when you purchase that out of state item.

 

[Payin-the-Toll]

Had an old accountant friend who would look at my taxes every 3-4 years if he came by to visit. Jumped all over my butt cause I wasn't paying sales tax on out of state purchases. We only use one credit card, so every month when I check my statement, I list 'pay tax' next to the items that were out of state and tax wasn't paid (mostly E-bay items and other internet purchases). Amazon.com is tricky cause sometimes they charge sales tax, and sometimes they don't. Come tax time, I just pull the 12 statements for the year and add up all 'pay tax' items and multiply by 6% (Indiana sales tax). It was $90 this year--bummer.

 

[Texas Proud]

Well aware of it...

Do not do anything about it... not much money anyhow....

BUT, it can be a big item for a corporation if they do not do things right.

 

[azanon]

The way i see it, no tax balances out having to pay shipping.

 

[eridanus]

Nope. A state however cannot directly tax a merchant that doesn't have a presence in the state. But they can tax you when you purchase that out of state item.

A use tax is usually charged when the item is first put into service (used or stored). This would place the burden of the out-of-state retailer, right? The reason states don't force out-of-state retailers (Amazon, etc.) to tax for them is because they can't -- Amazon doesn't have a substantial, or even minimal, presence in Arkansas. Thus the honor system.

Quill Corp. v. North Dakota

But, hey, I'm no lawyer.

 

[Martha]

A use tax is usually charged when the item is first put into service (used or stored). This would place the burden of the out-of-state retailer, right? The reason states don't force out-of-state retailers (Amazon, etc.) to tax for them is because they can't -- Amazon doesn't have a substantial, or even minimal, presence in Arkansas. Thus the honor system.

Quill Corp. v. North Dakota

But, hey, I'm no lawyer.

Maybe the confusion is semantics. 

Yes, a state can't force an out of state retailer to collect a sales tax for it if the retailer has no presence in the state.  The theory is that when a retailer is collecting a sales tax, it is doing so as an agent of the state.  You the purchaser actually owe the tax.  If it is not collected for you, you have to pay it to the state. 

Don't get too wound up on the difference between sales and use taxes. 

BTW, I have read that case and it only has to do with whether the state can force the out of state company to collect taxes. It does not have anything to do with whether the state can collect the taxes from its own residents. Trust me, it can.

 

[cute fuzzy bunny]

Heres an interesting one. I buy a lot of stuff simply because I can find it easily, have it delivered to my door, and dont get charged tax by the vendor. Sometimes small stuff, but sometimes not paying that 7-8% "surcharge" makes a large purchase desirable. You tax me on everything I buy from anywhere, I probably dont buy the small stuff because it'd be a pain in the butt to chase it down and I wont pay extra for the convenience, and I probably skip some of the large purchases as the 7-8% extra paid for taxes would make it more than I'd want to pay.

Could this be another one of those short-sighted policies? Force sales tax payments and end up seeing a lot of sales dry up?

 

[Martha]

The local bricks and morter retailers don't like it much that they have to collect a sales tax, but the online vendors do not.

I live in a border city. Wisconsin taxes clothing. Minnesota doesn't. It really hurts clothing sales in our neighboring Wisconsin city. (Even though Wisconsin residents likely are supposed to pay sales tax on their income tax returns for clothing purchased tax free in Minnesota).

 

[cute fuzzy bunny]

Then a smart clothing company should move to minnesota?

Would people buy as much clothes if they had to pay tax on them? I used to see people drive from MA to NH and go on shopping sprees at the tax free malls there. Would they drive to the local mall and buy? Granted, you're seeing some economic 'harm' to the state that would otherwise collect the tax, but are we seeing overall country wide economic improvement? Do the online stores do as well as they do because they dont pay tax? Would people revert to B&M if the online stores went out of business?

I can say with some certainty that I wouldnt have bought much of anything from Amazon.com the last 5 years if I had to pay tax. I stopped buying from Buy.com when they started charging tax.

 

[Martha]

I see what you are saying and it could be that the overall economic benefits of this "cheating" outweigh the detriments. I just don't know. I do know that there are lobbyists working for a solution to the on-line sales tax "problem."

Are we talking about immigration or sales tax?

 

[retire@40]

The way the states will get to the individuals not paying a use tax is by first getting a hold of customer lists from out of state vendors and then using the list to track down it's residents who paid no use tax.

I would think the states would generally only go after big ticket items or items with a lot of volume.

 

[youbet]

Maybe the lack of paying this tax is because of lack of enforcement.  Maybe the lack of enforcement is do to the cost of enforcement being disproportionate to the revenue that would be generated? 

 

[azanon]

Well, one of the reasons i find the topic interesting is because we have to be talking about a LOT of money, if all of this stuff bought out of state is supposed to be generating sales tax. I would imagine for any state that does have a sales tax, this would be a lot of money not being paid. So, i'm just surprised we dont hear about it more than we do in the news.

I also would not buy online near as much if they started charging sales tax. The sales tax often offsets the shipping charges.

 

[cute fuzzy bunny]

So there you go. We might end up with a lot of people that slow down their purchasing decisions or elect to not buy items at all if they have to pay shipping AND sales tax.

Bunch of online stores go out of business. People stop running up their credit cards. Everybody saving their money.

It'd be a nightmare!