by William Petrocelli
According to the San Francisco Chronicle (Oct. 30, 2009), the California Board of Equalization is now going after about 80,000 taxpayers in California for collection of “use tax” on purchases they have made from out-of state vendors over the internet.
According to the BOE, there’s about $1.1 billion in such unpaid taxes in California each year. If successful with this initial group, the Board of Equalization could go after every resident of California who has ever bought something on the internet without paying the sales tax.
This is not a new tax. California, like most other states, has always had two overlapping taxes: (1) a sales tax that businesses are required to collect at the point of sale and (2) a use tax that the customer is required to pay on any purchase for which a seller has not previously collected the sales tax. The rate is the same. The idea behind this system is to give the state two chances to collect the tax — first from the seller and, if that fails, from the consumers themselves later on.
In the past, the state hasn’t made any consistent effort to collect unpaid use taxes, probably figuring that it collects enough from local merchants and that it’s not worth the effort to go after the rest. Not any more. Now that the state is so strapped for cash, it seems to be stepping up its efforts — first with business purchasers and probably next with ordinary consumers.
What does this mean to a consumer? If someone purchased $2,000 a year on-line from a non-tax collecting seller (we wouldn’t think of naming any names), he or she would be liable for $180 a year in taxes, and perhaps $1,800 if a ten-year statute of limitations is applied. And if you add in interest on all the unpaid amounts . . . It could be a bit of a shock.
According to the San Francisco Chronicle (Oct. 30, 2009), the California Board of Equalization is now going after about 80,000 taxpayers in California for collection of “use tax” on purchases they have made from out-of state vendors over the internet.
According to the BOE, there’s about $1.1 billion in such unpaid taxes in California each year. If successful with this initial group, the Board of Equalization could go after every resident of California who has ever bought something on the internet without paying the sales tax.
This is not a new tax. California, like most other states, has always had two overlapping taxes: (1) a sales tax that businesses are required to collect at the point of sale and (2) a use tax that the customer is required to pay on any purchase for which a seller has not previously collected the sales tax. The rate is the same. The idea behind this system is to give the state two chances to collect the tax — first from the seller and, if that fails, from the consumers themselves later on.
In the past, the state hasn’t made any consistent effort to collect unpaid use taxes, probably figuring that it collects enough from local merchants and that it’s not worth the effort to go after the rest. Not any more. Now that the state is so strapped for cash, it seems to be stepping up its efforts — first with business purchasers and probably next with ordinary consumers.
What does this mean to a consumer? If someone purchased $2,000 a year on-line from a non-tax collecting seller (we wouldn’t think of naming any names), he or she would be liable for $180 a year in taxes, and perhaps $1,800 if a ten-year statute of limitations is applied. And if you add in interest on all the unpaid amounts . . . It could be a bit of a shock.
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