The bit about the car was tongue in cheek. I’m interested in the tax consequences of large purchases. So instead of a car, let’s say it’s an expensive, high quality slave.
This is where I get confused. The vast majority of my online purchases are services instead of items. I’ve never heard of services being subject to sales tax (and therefore, presumably, use tax). So, for example, if I pay someone to take my photograph, I pay a fee for his services, but no additional sales tax. Similarly, if I pay someone to host my website (not just hosting space, which is not a physical object anyway, but tech support and other services etc.), I’ve not paid sales tax on that either, and just wouldn’t expect to, but then again, my host is physically located in another state. Similarly on the rare occasion that I buy stock photography – I’m not buying an item (the photo) so much as I’m buying permission to use that item (a license), and if I were buying usage directly from a photographer, I don’t think it would occur to anyone to apply sales tax. So I’m unsure what the rules are; if it would be taxed anyway just by virtue of the fact that it was an “online purchase.” (And would this vary by state?)
Then there are the times when I’m charged sales tax anyway, which would go to another state; am I supposed to pay tax twice on that item? That hardly seems fair.
The Michigan 1040 lets you calculate your use tax based on your AGI if your receipts are missing or innacurate, but only for purchases less than $1000. For individual purchases over $1000 each, you’re supposed to pay 6%, regardless of whether you have a receipt for it or not.
If by “expensive” you mean >$1000 (I have no idea how much slaves are selling for lately), then you owe a definite 6%, whether you kept your receipt or not.
The reason Texas went after Amazon is because the way the laws are written, it’s the retailer’s responsibility to collect and pay the sales tax.
Without state income taxes, it’s just about impossible to enforce individual sales tax payments.
Just got our taxes done this weekend. We’ve been using the same preparer for a number of years now, somebody my wife used to work with, and we know each other well. She does a good job and is very thorough and professional.
During the preparation, she said: “There’s something new this year. Well, it’s not new, but we’re now required to ask you verbally. Did you buy anything online that you didn’t pay sales tax on?” Then, without waiting for us to respond, she added, “I’m guessing you probably didn’t,” typed a zero in the box and moved on.
Sure, it’s a sample size of one, but if this is any indication of how seriously actual tax professionals are taking this, it probably doesn’t have a lot of teeth.
I can only speak for my state- I’m supposed to pay use tax on anything I bring into NY which would be subject to NYS sales tax if I bought it in state. If I paid sales tax in another state with a lower rate , I’m supposed to pay the difference. If I paid in a county in NYS with a lower rate, I’m supposed to pay the difference. There’s not a special tax for online purchases - the rules are the same whether I buy in NYS or out of state ( including online). I can either keep records of each individual purchase, or I can use the safe harbor amount in the tax table.
Same with Idaho.
Well, I guess the question is, how am I, a non-tax-professional, supposed to know what things are taxable, and what the tax rates are on whatever Amazon (for example) sells me? Is there a master list, somewhere? Complicated by the fact that I live in Chicago, so if I buy something from a brick and mortar store here, the “tax” line includes both state and city sales tax, and frankly I don’t know what the individual percentages are (they’re not separate line items on the receipt, just one combined “tax” line). I’m pretty vague on what the combined percentage is, actually, other than somewhere around 10%. Except for non-taxable items. Oh, and items that are subject to tax, but a lower tax-rate than most things. The extent of my knowledge is that the receipt prints a separate tax line (or two, in the case of combined high-tax and low-tax items) that typically amounts to a couple bucks.
I’m not sure how the average joe is supposed to figure this out when it practically takes an advanced degree in accounting. Thankfully, as I said, I don’t buy much in the way of items online – if I want a book I usually go to a store first, and maybe the library. But I suppose it’s possible that what I think of as a service, the IL tax man thinks of as a taxable item, but I don’t know how I’m supposed to know that. I would, obviously, prefer not to guess.
Your state’s taxing authority no doubt has a publication ( most likely on the website ) listing exactly what items are subject to state sales/use tax and at which rates. After all, business owners need to know when to collect tax.
But the general rule is 1 Did you bring something from another state into Illinois? If you didn’t , no tax. 2 If you did, does Illinois tax purchases of that item?
But everyone I know who buys/sells a car from/to a private party, say for $5,000 cash, tells the notary the car sold for $500, thus reducing the tax paid.
Everyone you know is dishonest?
That’s very unfortunate.
Where I live, the tax you pay on a used car purchase from a private party cannot be any lower than what it would be based on the NADA value of the vehicle. If you honestly think the value of the car should be lower, based on major repairs needed/terrible condition/whatever else, you’ve got to jump through a lot of hoops to get the tax lowered.
Echoing Bricker’s comments, it’s unfortunate that your only acquaintances are dishonest people. This is plain ol’ tax fraud, and there are civil and criminal penalties for it. In your stated example, if sales tax is 6%, then you have committed fraud to the tune of $270. If discovered, expect the state to take a dim view of this.
I’ve sold two vehicles privately so far, and in neither case did I understate the selling price on the title.
If you have a problem with the magnitude of your taxes, take it up with your elected officials; tax fraud is not the answer.
Hm, well, the IL Dept. of Revenue is ever-so-helpfully vague. If there’s a Master List of taxable items, I can’t find it. It describes taxable items variously as “tangible personal property” (so, I guess that means digital and intellectual property are not taxable?) and “general merchandise.” No sign that services are taxable, but still no way of knowing if they’d agree with me that webhosting is a service and not “tangible property.” Confusing matters, Netflix (which to me is a service – I don’t get to keep the DVDs) is taxed, collected by Netflix when they auto-charge my CC every month (don’t know which state that goes to, though). And also, “qualifying food, drugs, and medical devices” are subject to the lower tax rate, but nowhere can I find what exactly it takes to qualify. Thankfully I haven’t purchased any food or such over the interwebs.
Their standard table based on AGI assumes I spend way more than I do on the internet, so I suppose I’m left to guessing. 
Secondary question: suppose I purchase tangible property on the internet for my business. I pay use tax later with my tax return – how to I prove the amount of tax paid, when not collected by the seller or indicated on the receipt, for itemizing on my Schedule C? And since I pay it after I file it, do I have to claim it on the following year’s Schedule C instead?
Well, I would cut them some slack. In a few cases I can think of, the seller (my friend) did not want to lie, but the buyer insisted that “that’s the way it is done”, and would have walked from the sale otherwise.
To say the seller did not want to lie is a lie; clearly he wanted (and was willing) to lie so he could sell the car without having to lower his price (or wait for another buyer to come along. The seller is complicit in, and benefitting from, tax fraud.
Since you don’t submit receipts along with your schedule C, this won’t come up except in an audit. I have faced exactly this situation with my business, and I haven’t bothered to claim it. If I were so inclined to claim it, and was hit with an audit at a later date, I’d present the receipt for the original purchase, along with the state tax return on which I declared/paid use tax on that purchase.
Example:
Buy $1000 worth of tangible property from out-of-state in 2009.
Claim $1000 expense on the federal Schedule C you file in April 2010.
Declare/Pay use tax on the state return you file in April 2010.
Declare the use tax (see previous line) on the federal Schedule C you file in April 2011.
If audited, you would present the receipts for your 2009 purchases (showing no sales tax paid in 2009), along with the state return you filed in 2010 (showing the use tax you paid in 2010 on your 2009 purchases).
Thank you, and yes, I know, but if (knock on wood) I’m ever audited, I’d like to have some idea what I’m doing / have my ducks in a row. Half the time I feel like I’m flying blind, anyway – even stepping through TurboTax, a lot of the times the questions are confusing, or I just have no way of knowing the answer. E.g. how much was my car worth two years after I bought it? I dunno, I didn’t think to look it up then – why would I? I wasn’t planning to sell it – and even if I had it wouldn’t have occurred to me to write it down somewhere so I’d have it more than 6 years later. I’ll take a wild stab that it was worth somewhat less than I paid for it, but how much less? Total guess on my part. I know practically nothing about cars.
I think it was a reasonable guess, but I don’t know that the tax man will agree with me on that, either. (And unless they TurboTax me through an audit 
I’ll probably have a hard time figuring out how that dollar amount got on that line, too.)