Wednesday, March 20, 2013

What do you mean, I can't stiff the state on sales tax by buying from Amazon.com???

One of the political columnists* I follow has recently tweeted about how he loves to buy from Amazon.com because he loves (paraphrasing) sticking it to the state for sales tax. While Amazon.com hasn't started charging tax in his current state, who knows?  This particular state has tried, just like California, Colorado and a few other states.

Legally you can't evade the sales tax by buying from Amazon.com or another out of state seller who doesn't charge sales tax.  Legally, you owe use tax instead.  See this golden rule.

Use tax was invented to plug loopholes in the law where sales tax didn't get collected. Essentially, the law works this way: if you have purchased something that should have been taxed, and it wasn't, then you owe use tax.

The best example is a book from Amazon. com. In most states, they won't charge you tax. But you're not off the hook. It should have been taxed, but Amazon.com didn't have to (that's another long story involving nexus). Therefore, you as the buyer must pay use tax  Unfortunately, the state doesn't have a good way to collect it.  They rely on the buyer to know the law and be willing to comply with the law.  And they're kinda ticked off about it.

They do give you the opportunity. In many states, there's a line on your state income tax return, usually near the bottom of the second page, where you're expected to put something in there. Most people don't. And states generally have a form for you to fill out to report your use taxes. This is probably one of the least downloaded forms the states have. If you feel a pang of guilt, and want to start filling it out, it often has a name like "consumer's use tax return." Look on the state's web page under forms.

Individuals simply don't get busted on this (very often).  Sometimes, states do have ways to find this information and it usually surprises the hell out of the buyer.  But most of the time, the state just throws up their hands and tries to figure out ways to require Amazon.com et al to collect that tax.  So far, disappointment has reigned.

But if you go around tweeting about the fact that you like to burn the state on their sales tax, eventually someone at the state revenue department may decide that a letter, if not an audit is in order. 

Businesses, who will get audited eventually, really need to worry about this. Because they will get audited and get caught.  Individuals?  Well, my job is to point the law out to you, and make you feel a little guilty.  Beyond that, you're on your own.

*I enjoy this guy, so I won't tell his name, or the state. Although I think the state knows by now.

[This is an update of an article I wrote in 2009.  I've spruced it up a little, but it was hard to improve on perfection.]




The Sales Tax Guy http://salestaxguy.blogspot.com
See the disclaimer on the right.
Don't forget our upcoming seminars and webinars. http://www.salestax-usetax.com and there's more sales tax news and links here http://salestaxnews.blogspot.com

Picture note: the image above is hosted on Flickr. If you'd like to see more, click on the photo.


2 comments:

Greg Holbert said...

Hey, Jim!

Great blog, first off, and thanks for giving people something to chew on in regards to the internet tax. This issue seems to be reverberating throughout the blogosphere, and your post is definitely no exception.

It does, however, deviate from the norm by actually telling people you SHOULD be paying your online taxes. People should definitely be on the lookout for internet sales tax. Even though it hasn't been signed in to law yet, people will continue to push for it.

Keep up the great blogging! People need to hear about these things and pay attention to the financial world around them. It is changing fast.

Jim Frazier said...

I think you've missed the point. All the internet tax bills do is shift the burden of collect the tax to the seller.

RIGHT NOW, you owe USE tax in your state when you buy something. This is regardless of any other rule about internet taxes.