Tax question- use tax on internet purchases

[Matt Day]

I've kind of run into a issue while doing my taxes. I've been doign my taxes myself for years and I've never done it before (or known I had to do so) but I realized that I'm supposed to pay tax on all internet purchases made out of state. Compiling a list of all those will take hours (days?) of sifting through CC statements, and will probably amount to a few thousand dollars, which translates to probably around $200 in taxes I should pay.

My question is, how many of you go through all this? My gut tells me that non many Americans do it, but that doesn't mean it's right. I doubt they'll come after me for a couple hundred bucks (they'll waste way more money in time and resources auditing me for that). I'm single, don't own a house, make far less than 6 figures, and file a 1040EZ, so I think I fly under the radar.

What do you all think?

[Eric Franklin]

I have been doing this for the last 3-4 years. Using Turbo Tax Online, they have a few questions you answer about your out of state purchases which comes up with an amount to pay. I do that because I don't keep track of my out of state purchases and it's a safety net from getting audited.

I've heard that it is really easy for them to audit for this because they just need to look at credit/debit card statements.

[Phil Sanders]

To add to what Eric just posted:

In the State of Michigan, a resident has two options: pay sales taxes on each item purchased where the internet seller didn't collect Michigan Sales taxes, OR you can take a small flat rate percentage of your Gross Adjusted Income (from Federal IRS tax form.) This option is rare, as few states offer it. FYI, I found two free internet tax preparers who did not do this correctly for the State of Michigan Tax form. Only Turbo Tax (free Internet version) correctly did this line in the Michigan Tax form.

For many of my purchases, the Internet seller does collect Michigan state sales taxes. But not all. I still use the flat rate to bypass the greater chance of an audit by the state.

I have heard that some states only look for big ticket items, like a single purchase over $500.00, $700.00, or some such figure. YMMV

But with so many places on the internet collect your state sales taxes already, the only places that you really need worry about is EBay and Crigslist.

Phil

[Denny Rice]

What "Uncle Sam" doesn't know won't hurt him. All of my taxes have went up (property, SS, ect.) they don't need to collect taxes on my internet purchases. If they continue to persue this, they will kill internet sales in a big way. One of the things that drives me to places like Amazon.com is the idea of free shipping and no sales tax.

[Joe Pelonio]

This is not an uncle sam issue, it's state. Some states have a "voluntary" sales tax on out-of-state internet purchases, others require it, but the IRS is not yet involved in collecting sales tax, in fact they do allow it to be deducted.

Here in WA we have no state income tax so there's no way for them to try and collect such a thing as sales tax on internet purchases in state or Not.

We as businesses have to collect it if we do business with customers in the state, and it's a pain because there are so many different rates involved when we ship things to different cities/counties.

When I sell to out-of-state customers we do not have to charge WA sales tax on internet purchases, if they have to pay it to their state it's up to them.

[Eric Franklin]

Denny, the government is not taxing internet purchases. They are collecting sales tax on purchases made out of state which the vendor didn't collect sales tax. I think all the states that do this have had the law in effect way before people made purchase on the internet.

State's are trying to enforce this now because they are losing tax revenue to people avoiding buy items locally.

I'm not talking about if this is right or wrong, I just stating what the laws are saying.

I do agree that we are taxed to much but avoiding paying your fair share of tax won't help in lowering taxes.

[Randy Cohen]

Line 21 Consumer’s Use Tax You will need to pay Consumer’s Use Tax if, during
the year, you purchased:
• merchandise by telephone, Internet, or television and no sales tax was charged
• merchandise while outside of Virginia and paid no sales tax
• more than $100 in merchandise by mail and no sales tax was charged
The tax is 5% of the total price except for food purchased for home consumption. The
tax rate on food purchased for home consumption is 2.5%.

There is the instructions from the VA Dept of Taxation as they appear in the instruction book that goes with your tax return.
I don't know anyone who actually does this.

[Stephen Beckham]

In Kentucky - I DO....

Them rascals called me! After my $20K laser purchase - they called me and asked if I paid sales tax. Of course not - so they stiffed me all of my working capital that was to be used to open my business. Not much opportunity to get out of it either -they sent a person to my office to explain it to me... Nicely of course...

Now I claim any purchases I've made quartlery and file it with my Sales & Use Tax forms. Software, Laser Toner, Ink, everything I 'USE' to do my business. I may claim some things that shouldn't but I'd rather error on the side of the State and forgoe the audit...

Good luck flying under the radar - give back to Ceasar what is his (right or wrong)... :mad:

[Cliff Rohrabacher]

I don't believe the state government has any mechanism to learn what you purchased out of state.

The only way they could would be if the company you bought from were to offer the data up and unless the company has an office in your state ( and registered with the Secretary of state) there will be no incentive to spend the time and money to rat out their customers. No company that I know of does it. They have absolutely no legal obligation to do so.

[Denny Rice]

Call me stupid here, but our local, state and federal gov't go through money like there is no end to it. When they run out, they raise our taxes or the feds just borrow from the Chinese. They are trying to pay for a war which is going to top out at over one trillion dollars. I don't feel bad about not paying taxes on a couple of internet purchases, whats next, are we going to start taxing grandma on her garage sale profits?:eek:

[Randal Stevenson]

Call me stupid here, but our local, state and federal gov't go through money like there is no end to it. When they run out, they raise our taxes or the feds just borrow from the Chinese. They are trying to pay for a war which is going to top out at over one trillion dollars. I don't feel bad about not paying taxes on a couple of internet purchases, whats next, are we going to start taxing grandma on her garage sale profits?:eek:


State by state can vary (and I am sure do).
My state the USE tax kicks in at $2000.
The form (4340) reads two ways, which helps with the confusion. The first part says when a person makes purchases with A seller (not all) located outside the state of Missouri, totalling more then $2000 in a calender year, you are to remit the sum of sales, times 4.225%.
Later it reads that ALL purchases that aren't taxed out of state, must be figured (not A seller, but ALL sellers).
It also doesn't read clearly, if less then $2000 isn't taxed, do you get to discount that first $2000.
That said, at least in my state, technically YOU ARE supposed to pay SALES TAX on garage sales (state) and REPORT INCOME from them on both state and federal.

I have never exceeded the limit, but then again my income would preclude that.

[Cliff Rohrabacher]

Call me stupid here,

That'd be just plain rude so I refuse.


but our local, state and federal gov't go through money like there is no end to it.Every one has to have some thing they do well.


When they run out, they raise our taxes It can get worse.


or the feds just borrow from the Chinese. They are trying to pay for a war which is going to top out at over one trillion dollars.

There is a better than 80% chance that the citizens of the US won't ever see more than a few pennies on the dollar as the actual cost. Nations that have to peg their currencies to the Dollar have to have lots and lots of US bonds and T bills in their treasuries to float their currencies. When all those bonds come due ( most in 10 years ) more bonds can be floated to pay for their redemption with coupon. Over a period of about 40 - 60 years as new bonds keep getting floated to pay for the old ones the actual cost in real money to the USA will tumble to mere pennies on the dollar.
If it sounds like a ponzi scam say the world "government" out loud.


I don't feel bad about not paying taxes on a couple of internet purchases, whats next, are we going to start taxing grandma on her garage sale profits?:eek:Actually Grannie and my 4 year old grand-daughter do in fact have to file a return on all transactions even those that are merely barter.

Say the word "government" out loud. Try to say it without cursing. I can't.

[Brian Elfert]

I got in big trouble with the state for not paying sales and use taxes when I ran a small business. My taxable sales were very small so I never even thought about getting set up to collect sales tax. Use tax for stuff bought out of state is what really got me.

The state started targeting my industry because they were finding lots of use tax violations. I probably got selected for audit because I had no sales and use tax payments on file.

The auditor was a stereotypical government beauracrat. I think she trained at the KGB school for government workers. She audited one year's worth of records and I then volunteered to self audit the other three or four year's worth of records. I ended up owing around $7,000 mostly in use tax. No penalties because I cooperated and did the self audit that she spot checked. That $7,000 was a pretty good chunk of a month's revenue at the time. I made sure to pay my sales and use tax after that.

[Brian Elfert]

That said, at least in my state, technically YOU ARE supposed to pay SALES TAX on garage sales (state) and REPORT INCOME from them on both state and federal.


Aren't you legally supposed to report just about any income? The tax guys probably aren't going to be going after garage sales since they have far bigger fish to fry like contractors taking cash for jobs. Lots of people do things like rent rooms in their house and never report the income.

The IRS has estimated that unpaid taxes is over $100 billion. If the IRS could collect those taxes it would go a long towards solving the federal deficit.

[Randal Stevenson]

Aren't you legally supposed to report just about any income? The tax guys probably aren't going to be going after garage sales since they have far bigger fish to fry like contractors taking cash for jobs. Lots of people do things like rent rooms in their house and never report the income.

The IRS has estimated that unpaid taxes is over $100 billion. If the IRS could collect those taxes it would go a long towards solving the federal deficit.


Yes as I stated (this was targeting the state specifically), you were supposed to report income. The comment was directed at sales tax. (I don't want to get in another ugly debate of how, selling something one bought, for less, is no longer income, fought that fight elsewhere with a couple of people).

The deficit, needs a LOT more help then just the tax money. There would have to be a lot more fiscal responsibility, such as, don't keep spending what you don't have, allow budgets to save some from one year, to the next, to cover future shortfalls (emergencies and such), pay down your debt (don't ignore it), etc....

[Chuck Wintle]

I was talking to my Tax teacher about purchases where no sales tax is paid. I asked if the onus were on the taxpayer to forward the appropriate amount. He said it is up to the merchant to collect taxes and remit to the government. It is not the responsibility of the taxpayer.

[Rob Russell]

In CT, when we file our state income tax return - there's a line for out-of-state purchases where we paid no sales tax. I put in an amount of a few thousand $ every year based on stuff we buy on eBay. I don't go through all the CC statements to get that accurate, but I do end up sending in a couple hundred $ of use tax every year.

Most states do have a sales tax now, so things we buy when we're in another state I generally don't worry about. Technically, if the sales tax rate in another state is lower then CT's 6%, we're supposed to pay the difference to CT. That generally doesn't happen - it seems like most sales tax rates are equal to or higher than the 6%.