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by Harry Rabb, C.P.A.
Special to Tropical Breeze
It’s not a tax many of us think
about, but if you’ve bought anything over the Internet, from
a catalog or abroad, it’s likely you owe it.
It’s called the “use”
tax, and state tax agencies are ramping up their efforts to collect
it from taxpayers who often have no idea what it is.
The use tax is the difference between what
you would have paid in sales tax if you purchased an item in your
own state versus what you actually paid on the purchase.
For the most part, states’ efforts
focus on educating consumers. But states also share information and
work with retailers and customs agents to track down taxpayers
who’ve made pricey purchases and never paid sales tax.
As with most things tax, the use tax
confuses plenty of people. For instance, many taxpayers think that
items they buy on the Internet are untaxed. But it’s simply
that the retailer is not required to collect the tax. Retailers are
required to collect sales tax if they have a significant presence
in the “ship-to” state, but they’re not required
to if they don’t. The buyer is still supposed to pay state
sales tax.
States focus on large, pricey purchases.
Florida, for instance, looks at the bills of lading for trucks
heading into the state. State officials can go through that to see
what’s on the truck, where it’s going and see if the
tax has been paid. If you’ve ever purchased furniture in
North Carolina, you already know that the trucks are stopped at the
state line, inspected, and use tax assessed against the
purchaser.
But plenty of people ignore their use-tax
obligations. Many states now include a line on their income-tax
return specifically for reporting use taxes.
If you buy high-priced items, you’ll
want to think about the use tax. States often target jewelry
purchases. Some jewelers offer to ship jewelry specifically so
customers can avoid sales tax. Some even take it one step further,
offering to ship an empty box to avoid the sales tax, but still let
the customer walk out of the store with the item.
Ironically, a lot of jewelers get caught
when they fail to insure the box, because they’re shipping an
empty box. Tax auditors now often ask for merchants’ shipping
documentation and a $20,000 item shipped without insurance tends to
catch their attention.
State revenue departments also work with
customs officials to collect tax on purchases made overseas. When
you come through customs, you report purchases. Customs reports
that information to the state revenue department, which then
contacts you.
Meanwhile, other states, including Ohio
and Tennessee, work with retailers to collect unpaid sales taxes.
Some retailers send records of sales and deliveries to customers
within that state to the department of revenue and then the
department of revenue sends out bills.
An effort to simplify states’
complex sales tax systems is gaining some ground, making it easier
for online retailers to collect sales taxes in more states. As a
consumer all that means to you is the company you are buying from
is more likely to collect the tax from you than they were in the
past.
Don’t confuse the various efforts
related to curbing Internet taxes with the use tax. Internet tax
discussions often refer to taxing access to the Internet.
That’s different from owing use tax if sales tax has not been
collected.
Taxpayers eager to follow the letter of
the law should record all purchases they make that are sales-tax
free — if those purchases would generally incur sales tax at
home.
In particular, record the large-ticket
items that might garner attention from the state’s tax
collector.
Sales taxes can be complex. For instance,
in Florida the software you download online is often sales-tax-free
but you’ll pay sales tax if you buy the same software in a
store.
Look on the state’s revenue
department website for more information on what items are subject
to sales tax in your area. But consumers don’t need to worry
all that much about the questionable items.
Also, check out the instructions that go
with your state’s “use tax return” — they
should clarify what you need to include and what you don’t.
In general, it’s what you pay when you walk out the door and
buy it.
It is important to understand that the
Department of Revenue has many avenues to identify taxable
transactions, sales or use, and assess tax to be collected. Each of
us should be aware of this.
• • •
This information is provided as a public
service and should not be construed as individual accounting or tax
planning advice. For information on how these general principles
apply to your situation, please consult an accounting or tax
professional.
Harry Rabb is a C.P.A. and owner of
Accounting Services, Inc., 935 Main Street, Suite D-1, Safety
Harbor. Call 727-725-4121.
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