I just received a letter telling me I’ll have to pay a California Use Tax. I never heard of this. Evidently, I’ll have to pay this Use Tax for any purchase I made out of state that did not charge me tax. So, if I bought a book from Amazon for $20, I owe (I think) $1.75.
I’m telling you, California is the nuttiest fucking state with all these taxes. I’ve been thinking of moving, and this just might push me to do it.
Does anyone know anything about this. Also, Am I going to suddenly have to pay this Use Tax on stuff I bought online five years ago? I did read that the penalty for any tax you do owe is an additional 10%. It seems like it’s a way for the state to tax online purchases, even though the feds have so far chosen to allow those transactions to be tax-free (unless the seller has a store in your state).
This is fairly standard for any state which imposes a sales tax. You are responsible for reporting and submitting any Cali taxes due on out of state purchases. Nobody actually does it, mind you, but that is pretty much the law in any sales-taxing state.
Ummm, it’s not just California that does this. Ohio requires* you to pay a use tax as well on items purchased from online retailers. There’s an area on your Ohio Tax return form where you are supposed to report it.
*By requires, it is codified in the tax code that you are required to do this, but it is purely self-reported so my understanding is that most people don’t do so.
A lot of states have this now, though I’ve never heard of it actually being enforced (for starters, what do they know about what you’ve bought out of state?).
California is far from the only state that has a use tax (basically the equivalent of a sales tax on purchases made out of state). Wikipedia reports that at least 22 states including California actually include an entry for it right on their income tax returns. It’s been in effect in California since the 1930s. So technically, yes, you owe the tax on pretty much everything you’ve ever bought online, subject to any statute of limitations that may be in effect. Not that I am a lawyer, or anything, mind you.
The letter you received is most likely a scare tactic. The state really has no way of enforcing this tax right now, since it’s pretty much impossible to audit every resident and every out of state business, and they therefore rely on self reporting (with some exceptions - if you make overseas purchases, for example, they do get the reported value from US Customs). I have no doubt they’re sending out a mass mailing hoping to scare up a little revenue, particularly with the budget in the lousy state it’s in. This situation might change if the state comes to an agreement with some of the larger retailers, like Amazon, to either collect the tax directly, or report the purchases. If that happens, it will likely be front page news.
The letter says that I have to register. And that one can be audited going back 8 years. I’m going to call the number provided on Monday. I never knew about this.
Assuming this is SOP, what wold happen if congress allows/requires online retailers to charge tax. Will it be the state of the the buyer or the seller? Seems like a bit of a nightmare.
I was wondering about this. I was thinking of just ignoring it. I wouldn’t be surprised if that the only people who will have to pay. And those might get hit for 8 years in taxes.
All the OP tells us that that you don’t have a fucking clue.
As the other posters have already pointed out, not only is this fairly standard law for most states that charge sales tax, but it’s been the rule for ages. The main thing that’s changed is that the prevalence on online sales has made it increasingly easy for people to avoid detection, and to avoid paying the tax.
The general rule, reflecting a 1992 Supreme court decision, says that any company that has a “nexus” (a warehouse, a distribution center, or some other physical presence) in a state can be legally required by that state to collect sales tax on purchases. So, when i purchased from NewEgg in Maryland, i didn’t get changed sales tax, but now that i live in California i get charged sales tax on NewEgg purchases because the company has a nexus here in the state.
New York passed a law a couple of years ago that attempted to extend the definition of nexus to things like Amazon’s affiliate program. Amazon sued to stop the law, and i think it’s all still in the appeals process.
A bunch of states have recently been trying to work out a way to collect more of the taxes owed on internet purchases, and supporters of the move include brick-and-mortar stores who argue, quite reasonably, that the ability of online retailers to sell without charging sales tax effectively undercuts local retailers and makes it harder for them to do business.
If i buy a $100 item here in California, i have to pay $8.25 in sales tax. But if i buy the same $100 item online from a business without a California nexus, i pay only $100 plus shipping. And, given the number of businesses that have free or very cheap shipping, that can give those out-of-state businesses a considerable advantage over local ones, especially for more expensive items.
The current arrangement in California specifies that you receive credit for taxes paid to other jurisdictions - so for example, if you owe 9.75% tax in California, but paid (let’s say) 6% Pennsylvania sales tax, you would owe the difference of 3.75% to California. Congress is of course perfectly capable of allowing or requiring any arrangement that they’d like, insofar as permitted by the interstate commerce clause of the Constitution.
If I were you I’d consult someone knowledgeable before calling the state directly and making any kind of statement that you might regret later. I can virtually guarantee you that you will be asked to identify yourself as soon as they pick up the phone, which means that you’re not going to be able to get away with asking “hypothetical” questions. They may only be able to audit you if you give them a reason to suspect you. This is not to say that you may not be better off calling them, especially if you owe them a LOT of money - but if that’s the case you’d certainly better get representation first. I note that you did not mention the term “amnesty” being a part of the letter, which leads me to believe that the people answering that phone are not there to help you, and they certainly aren’t there to tell you what you don’t, by right, owe.
While I can’t begrudge anyone leaving California, I will point out that Texas has a use tax as well. Just because you don’t have income tax forms to declare it on does not mean that they don’t have mechanisms to collect and administer it.
It’s a state thing; it’s got nothing to do with the feds. If the seller does not collect and remit the sales tax to your state, then you need to. In most cases, sellers are only required to collect the sales tax if they have a brick-and-mortar presence in a state. But the tax is still owed.
The aforementioned Amazon collects sales tax on sales to states where Amazon has a physical presence:
Actually I should also say - yes, I do self report my use tax to California, and have been doing so since moving here. I like living here and wish to see the programs I enjoy funded, and I do not hold a grudge against the people of the state or its institutions for getting taken hostage by the state employees unions to the tune of $ 28 billion (this year) in pension funding, or about a third of the tax revenue - go ahead, look it up! This has happened to pretty much every unionized organization in existence, and is a problem to a greater or lesser extent in the entire country.
Funny you should mention “all these taxes” when we have Prop 13 on the books which is keeping property taxes artificially low, depriving local and state government of billions of dollars in funding.
Every state I’ve ever lived in also has a use tax for out of state internet purchases. I wish they’d just make Amazon collect local sales tax as I feel like a sucker because I’m one of the only ones who actually pays it. Why? Because I’m scared that the one time I don’t, I’ll get audited and busted. Plus, it only comes to ~$80 a year, so it’s not that big of deal. I just hate paying it when everyone else is getting away with not paying. Either enforce the law for everyone, or take it off the books.
The use tax itself is absolutely standard, as other have said, but this is the first I’ve heard of a state trying to actually enforce it on some non-specific basis (it’s common for states to search yacht registries etc. to look for big-ticket items purchased out of state).
:mad:
Nicely done. (Credit where credit is due.)