Sales tax on out of state purchases

[Ready]

I’m always tempted to order electronics equipment from the big NY resellers - Adorama and B&H Photo and Video. They have great prices and they make it a point to say “no tax collected outside NY or NJ”. In my situation, California has a use tax in lieu of sales tax so I’m supposed to report the purchase on my tax returns and remit the sales tax.

I’ve always been curious about whether reporting these purchases is common practice among taxpayers. I know it varies by state and I don’t believe all states require you to pay the uncollected sales tax.

How have you handled this on out of state purchases?

 

[MarieIG]

Don't seem to have much of an issue. NY sales State and County tax comes up automatically on most of my purchases.

 

[Amethyst]

This year, MD sales tax has started coming up automatically on most of my online purchases, even where it didn't use to, and even when there is no Brick and Mortar presence in MD.

 

[Cessna152]

This year, MD sales tax has started coming up automatically on most of my online purchases, even where it didn't use to, and even when there is no Brick and Mortar presence in MD.

That is likely because of the U.S. Supreme Court decision on South Dakota v. Wayfair regarding collection of sales taxes for online purchases from vendors having no presence in the state the item is shipped. Explained in more detail here: https://taxfoundation.org/supreme-court-decides-wayfair-online-sales-tax-case/

 

[easysurfer]

...

How have you handled this on out of state purchases?

Back in the old days, calculating and reporting the use tax was pretty much on the honor system for my state. Kinda like a speed limit on the expressway when 90% of people were going over the limit.

Fast forward to now and when using Turbotax to do my state taxes, there is an option to 1) have an estimated use tax calculated based on income or 2) go ahead and keep own records and calculate using sales receipts. I choose option 1 as for me that amount is always lower plus the added benefit of not having to keep records of each stuff I buy.

 

[Ready]

I’ve seen the question come up in TurboTax, but I’ve never attempted to keep track of my out of state purchases that did not collect the tax. I rarely buy anything online from anyone other than Amazon and Costco, both of which collect the tax. So I think the only purchases I’ve possibly made are from an occasional third party Amazon seller that doesn’t collect CA taxes. And I doubt those purchases total more than $100 per year, so we are talking about less than $10 in taxes.

The reason for my post is that I’ve been looking for a new MacBook Pro, and I generally check the www.apppleinsider.com web site for special prices. They routinely flaunt the fact that their retail partner Adorama does not collect sales tax outside of NY/NJ. If taxes are clearly due based on the new laws, it strikes me as odd that they continue to push this issue. It’s as if they are encouraging people to ignore the tax laws and buy from them to save the tax. I’m surprised the taxing authorities haven’t taken up issues with this by now.

 

[Lakewood90712]

You are supposed to report and pay on your CA form 540. I don't think anyone does, and about zero chance of getting caught unless it is equipment for a business and you are writing off the cost and get audited too.

I think we pay enough state taxes. Like 65 cents a gallon Fed /State + 9 3/4 % sales tax on gasoline, We usually are in the highest 3 gas prices nationwide California lumber fee on wood , paint recycle fee, fee $75 cents on a gallon can, it goes on and on

I am waiting for the Hamburger wrapper recycle fee .

Rant Over

 

[gcgang]

When I lived in Montana (no sales tax) I'd have major($500 back then was major to me) purchases shipped to Montana from stores in Michigan, New York and Washington(?) and I'd avoid State sales tax in those states.

Re:OP, I'd plead ignorance on reporting stuff that's not reported if ever questioned.

 

[SteveNU]

Connecticut has a use tax and it's on the honor system. A few years back Newegg out of New Jersey provided the state of Connecticut a listing of how much people had purchased over a few year period and then the state sent out notices to collect the back taxes under an amnesty program.

 

[skipro33]

I'm in California and the best thing you can do here is to keep as much money out of the government's hands as you can. Downright patriotic I feel. In the meantime, it's Thanksgiving, and the thing I'm most thankful for is that we don't get all the government we pay for....

 

[Amethyst]

Yes, I believe you are correct. Since it is a SC decision, shouldn't it be affecting everyone in all states?

That is likely because of the U.S. Supreme Court decision on South Dakota v. Wayfair regarding collection of sales taxes for online purchases from vendors having no presence in the state the item is shipped. Explained in more detail here: https://taxfoundation.org/supreme-court-decides-wayfair-online-sales-tax-case/

 

[misanman]

I have reported and paid the use tax on out of state purchases as (for me) it would be dishonest not to do so.

 

[braumeister]

I have reported and paid the use tax on out of state purchases as (for me) it would be dishonest not to do so.

Same here. My state makes it very easy. If you have your receipts you can pay exact amount (state has 6% tax), but most people just use the lookup table the state provides. That gives you a tax amount based on your AGI. It's only .08% (8 bp) so really painless.

 

[Montecfo]

Yes, I believe you are correct. Since it is a SC decision, shouldn't it be affecting everyone in all states?

The supreme court allowed the states to force collection, but states may not have implemented new laws to require it in all cases. Yet ...

 

[CaptTom]

Same here. My state makes it very easy. If you have your receipts you can pay exact amount (state has 6% tax), but most people just use the lookup table the state provides. That gives you a tax amount based on your AGI. It's only .08% (8 bp) so really painless.

Same here. I always pay it. It's not much money, and it covers me if I'm ever audited. I know that purchasing on-line or out of state as much as I do puts me way ahead of the game even with that extra tax.

I've noticed that more Amazon purchases are being taxed since that SC decision, but the majority are still not. No clue why, but I'm happy to pay a fraction of what I "should" owe and still be legal.

 

[mrfeh]

I’ve always been curious about whether reporting these purchases is common practice among taxpayers.

It should be common practice, but I get the impression it isn't.

Those that don't pay them are tax cheats.

 

[Independent]

The supreme court allowed the states to force collection, but states may not have implemented new laws to require it in all cases. Yet ...

This.

Earlier SC rulings (Quill Corp vs. North Dakota) had prohibited states from requiring that out of state sellers collect the tax. Hence some states said the their residents still had to pay the tax, but they needed to self-report.

Five months ago, in South Dakota vs. Wayfair, the SC overturned its earlier ruling. (Saying, I think, that technology has advanced to the point where this is no longer an unreasonable burden on interstate commerce.)

But, state tax laws often followed Quill. In most cases, states had to change their laws to start mandating that sellers collect the tax. Many have. This is a Nov 1 article with a handy map https://www.bna.com/four-states-begin-n57982093438/

(Amazon had already been collecting sales taxes for all state on Amazon's own sales, but not on sales of other retailers that use Amazon as a platform.)

The SD law expressly exempted sellers with both less than $100,000 in sales in SD and fewer than 200 transactions.

As a consumer, I'm expecting that online retailers will be collecting sales tax pretty soon. My state has passed a law that goes into effect Jan 1, 2019. It has the same exemption as SD.

I think there will be small retailers that may know they should collect sales taxes, but won't. They will hope they are small enough to fly under the radar.

---
I can't resist stating an opinion. I think that applying the same tax rules to sales from internet and brick-and-mortar sellers is a good thing.

 

[jkern]

I volunteer as a Tax Preparer (VITA) for low to moderate income folks each year. After 8 years not one person has ever brought online receipts and paid the Use Tax (CA).

 

[SteveNU]

It should be common practice, but I get the impression it isn't.

Those that don't pay them are tax cheats.

It's estimated that ~98% don't pay the use tax.

Here in Connecticut we can drive to seven different states in two hours or less.So every time we travel in New England or any other state in the country we would have to keep our receipts for anything we purchased that was being brought back into Connecticut. Then you have to figure out the difference between the tax paid where we bought it and what it would have been in Connecticut. Then determine if the item is tax exempt or not. Then add in all the items purchased online and do the same. Then keep all those records for years.

So even if you spent a few thousand dollars you may end up owing $100 bucks or less for all that work. So how much time and effort do you want to put forth to be an agent of the state to make sure they get their cut?

 

[Midpack]

Like 98% of us, I don't look to pay more in taxes. I did summarize every dime we paid in sales taxes one year and reported it, but what a huge PITA. There must be a better way (forcing online retailers to add sales taxes ALWAYS).

That said, it's not fair to brick-n-mortar retailers when ANY online retailer doesn't add state taxes to ANY online order. I buy more online than at brick-n-mortar, but fair is fair, and your local retailer has enough disadvantages without online retailers forgiving sales tax.

 

[mrfeh]

It's estimated that ~98% don't pay the use tax.

Here in Connecticut we can drive to seven different states in two hours or less.So every time we travel in New England or any other state in the country we would have to keep our receipts for anything we purchased that was being brought back into Connecticut. Then you have to figure out the difference between the tax paid where we bought it and what it would have been in Connecticut. Then determine if the item is tax exempt or not. Then add in all the items purchased online and do the same. Then keep all those records for years.

So even if you spent a few thousand dollars you may end up owing $100 bucks or less for all that work. So how much time and effort do you want to put forth to be an agent of the state to make sure they get their cut?

I think you're describing a different situation than in the original post.

My comment was regarding online sales where no sales tax is charged.

 

[OldShooter]

... That said, it's not fair to brick-n-mortar retailers when ANY online retailer doesn't add state taxes to ANY online order. ...

Yes, there is a saving on sales tax but it is on average washed away by the relatively high cost of shipping and handling small packages. Considering sales tax savings and shipping costs in aggregate, the online retailer is at a disadvantage to the local stores. Where the online supplier is NOT at a disadvantage is in his/her ability to run at thinner margins and to carry a large inventory due to large sales volume.

I am not unsympathetic to the local stores but they hurt themselves with me when they make this transparently false sales tax claim and assume that I am too stupid to see their shipping cost advantage.

 

[youbet]

Yes, there is a saving on sales tax but it is on average washed away by the relatively high cost of shipping and handling small packages. Considering sales tax savings and shipping costs in aggregate, the online retailer is at a disadvantage to the local stores. Where the online supplier is NOT at a disadvantage is in his/her ability to run at thinner margins and to carry a large inventory due to large sales volume.

I am not unsympathetic to the local stores but they hurt themselves with me when they make this transparently false sales tax claim and assume that I am too stupid to see their shipping cost advantage.

I agree with Midpack. When a state plans to collect sales tax to fund services, it's a disservice to folks who buy locally and pay the tax to allow others to purchase-and-ship the same goods without paying the tax (and still expect gov't services).

It seems like competition is best fostered when the competing parties, in this case local vs. remote retailers, play with the same burdens. Both should collect sales tax. The remote vendor has shipping costs. The local vendor has the expense of keeping a storefront, customer-facing staff, etc. Let the vendor who can provide the best combination of price and customer service win, without sales tax differences being a factor!

 

[MichaelB]

I agree with Midpack. When a state plans to collect sales tax to fund services, it's a disservice to folks who buy locally and pay the tax to allow others to purchase-and-ship the same goods without paying the tax (and still expect gov't services).

It seems like competition is best fostered when the competing parties, in this case local vs. remote retailers, play with the same burdens. Both should collect sales tax. The remote vendor has shipping costs. The local vendor has the expense of keeping a storefront, customer-facing staff, etc. Let the vendor who can provide the best combination of price and customer service win, without sales tax differences being a factor!

I also agree. Sales tax is not a tax on vendors, it is a tax on consumers, and some online tax was not collected becasue it was considered burdensome on the vendor. States are now free to expect online vendors to carry out the same function as agents of retention.

92% of all retail is local brick and mortar, and 44% of online is Amazon, so 95% or retail sales are either exempt or already subject to sales tax.

 

[Montecfo]

Collecting use tax is a burden on small business and those with limited sales to a particular jurisdiction. Hopefully Congress will enact limits on the requirement of small sellers to collect use tax.