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Sales Tax

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Rook

Shiny_Rock
Joined
Oct 4, 2002
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294
I just want to make a statement about sales tax and companies claims that if you buy over the internet from a company that is not in your state, you do not have to pay sales tax, and thus can save a few hundred dollars.

Well that is not really true. 46 of the 50 states have a use tax. Basically it is sales tax on purchases made out of state and brought into the state. The tax rate is usually the same as that on the sales tax. As a citizen of a state you are required to know what the law is regarding sales and use taxes and to pay them properly if it is required.

While right now inforcement of the use tax is not very strong, there are tremedous efforts in most every state and in the federal government in creating ways to enforce the use tax. State sales tax is the main income source for a state, and with the increasing internet sales, states are recognizing much lower revenues. This is creating a major need to reform the use tax and to start advidly collecting it.

Also, even if you get away with not paying use tax on items pruchased over the internet, most states have a 10 year statute of limitations to come after you. And if you are caught, it is not a pretty site. I have seen many cases where a taxpayer willfully did not pay use tax on a major purchase. Lets just say the repercussions were strict. Generally the penalties and interest are greater than the tax. Plus there are litigation costs. It can be a nightmare.

The U.S. Gov. is also getting involved to help the states. They are considering forcing the collection of use tax on out of state vendors, and creating a national use tax system that would roll down to the states to replace the lost revenues. Plus the U.S. Gov. is alway willing to help states determine who has not paid their use tax.

Just a little tid bit on sales and use tax. I have access to many article that descibe in detail the use tax of the various states. They do a much better job describing it than I do. If anyone would like any other info please let me know.

Rook
 

pricescope

Ideal_Rock
Joined
Dec 31, 1999
Messages
8,266
Thanks for the info, Rook. I think people should know more about it.

If you could, please post some links to the articles here.
 

golfer

Shiny_Rock
Joined
Oct 7, 2002
Messages
128
Just to allay some fears, my understanding is:

Government efforts are not aimed at enforcing previously existing use taxes, but an internet sales tax, or similar tax on goods shipped out of state. The critical difference is that the tax is collected at the point of sale -- which saves you a tremendous amount of problems in figuring out your annual taxes. In short, collecting of use tax for general catalog/internet purchases has never been even remotely enforced for several reasons, most notably the fact that it would be an unbelieveable burden on all consumers to figure out what they owe (you'd have to keep pretty strict records of everything you bought online -- what a pain in the ass). Although you may technically be violating the law, as long as you are not creating fraudulent invoices (e.g., claiming that the item was sold in X state when it was really sold in Y state), you are not doing anything that your fellow 250 million Americans are also doing. If anyone has ever been prosecuted for this crime (in the manner I describe), then I would be utterly shocked.

The only situation that I have ever heard of where states have enforced this tax is where people deliberately circumvent it in large purchases -- artwork, cars, etc. with fraudulent invoicing.
 

Rook

Shiny_Rock
Joined
Oct 4, 2002
Messages
294
Leo,

The articles are on Westlaw, which requires a membership and is very expensive. If anyone would like info specific to their state or just a general overview I could e-mail it. I have two right now. On from the Harvard Law review and one from the Conneticut Law review.

Golfer,

Use tax is enforced. I actual worked on a case involing a person who purchased a computer form Dell for around $2300. They were hit hard. Imagine if they went after that a $10,000 plus ring may be ripe pickings. Also, just because millions of people are not reporting their tax liability correctly does not mean you can not get into trouble about it. If millions of people jumped of a bridge....

The U.S. Gov. is trying to implement a system of tax on internet sales called a transfer tax. This is a tax on the use of the internet lines and the shipping of the goods through commerce. This is a completely different animal from what I spoke of earlier. They are also attempting to solve the use tax problem for states by helping the states enforce it.

The problem with enforcement is it takes a lot of people a lot of time and a lot of money to do. They basically have to review sales records of all the companies in the state to find out who has purchased goods from another state. Then the states share this info with each other and collect the taxes from the individuals. With the major decrease, were talking billions nationwide, in sales tax, states are very concerned. In Michigan their are specific state divisions dedicated soley to this issue.

Also in Michigan, reporting use tax is easy. If you do not want to maintain "adaquate books and records" as required by the state, you can simply pay a % of your gross income as use tax, on your and along with your income taxes. I am not sure if other states implement a simular system.
 

golfer

Shiny_Rock
Joined
Oct 7, 2002
Messages
128
What are the cites of the articles?

And what are the details of the Dell case? I have a very hard time believing someone was prosecuted for buying a Dell computer online and not paying a use tax.
 

Rook

Shiny_Rock
Joined
Oct 4, 2002
Messages
294
I will post a parts of a couple articles on a seperate listing called "Sales Tax Articles". They will not be the entire articles because they are very long. Also, I do not have a website. They are found on either Westlaw.com or Lexisnexis.com, but you need a pass to get access.

The Dell case was simple. Taxpayer got caught not paying, department of treasury issued a determination of tax liability payable, taxpayer did not fight it or appeal, treasury wins. I am not sure how treasury found out about it. I do understand that it is difficult for treasury to find out if people did not pay their taxes and to enforce it. Maybe it was a random desk audit? Or, I think Dell is one of those companies that states have coerced into disclosing their out of state sales? States are fairly tricky and they all collude in attempts to enforce taxes.

I am not saying that everyone will get caught, or even very many people will, but if you happen to get caught, the state will make an example of you to try to scare others into conforming. Just because you may get away with tax evasions does not mean you should!

Also, if your state is not able to collect its taxes that way, it will just raise other taxes. In the end you will never escape taxes.
 

Rook

Shiny_Rock
Joined
Oct 4, 2002
Messages
294
I am not sure how to upload that information yet. When I figure it out I will do so.
 

Rook

Shiny_Rock
Joined
Oct 4, 2002
Messages
294
Golfer, it looks like you are a lawyer, is that correct?

In that case here are the articles I have been talking about. I am trying to find a way to upload the introduction part so that others can read them.

"Harvard Journal of Law and Technology Summer, 2000 Symposium: Debating the Prospect of E-Commerce Taxation
Articles & Policy Commentary TOLLING THE INFORMATION SUPERHIGHWAY: STATE SALES AND USE TAXATION OFELECTRONIC COMMERCE; Megan E. Groves" 13 Harv. J.L. & Tech. 619

"2002 The University of Toledo Toledo Law Review
Spring, 2002 33 U. Tol. L. Rev. 621
A NEW LINE FOR AN OLD TAX: OHIO'S USE TAX ON INDIVIDUALS

Douglas Oliver"

Sorry about the poor sitations
 

diamatuer

Rough_Rock
Joined
Oct 15, 2002
Messages
25
Rook,

That's an interesting point. I definitely agree, we do not pay use taxes at our own risk - and our only protection is the heavy administrative burden. As far as sales tax collection, many statutes do not even begin to toll until a return is filed, but I cannot speak for use taxes.

As for the proposed taxes you mention, don't we still have a moratorium on new taxes on internet commerce? Plus, how will they get around the severe due process and commerce clause limitations imposed on states? Quill and Complete Auto are pretty tough to get around - states have been trying for years.

As a side note, I do not think it is a good idea for vendors to preach the benefits of no sales tax - they could subject themselves to substantial penalties for misleading/fraudulent tax advice.
 

Caratz

Shiny_Rock
Joined
Jun 4, 2002
Messages
222
Here is a link to information on use taxes:

http://www.webcom.com/software/issues/1ec-sttx.html
 

Rook

Shiny_Rock
Joined
Oct 4, 2002
Messages
294
Quill is going to be one substantial burden to cross. The U.S. Gov. armed with the commerce clause is a dangerous entity though. I don't know how, but if the need is great enough and the $$$$$ substantial, I am sure they will find some way around it. They always do.

Actually I think a lot of vendors say, in small print of course, that they do not collect sales tax. They don't say that you are not liable for USE TAX. I think they will get away with that. No backup for that statement, just a hunch. Also I have seen more sites that warn people that they may indead have to pay tax to their own state.
 

Rook

Shiny_Rock
Joined
Oct 4, 2002
Messages
294
Caratz,

great site!

I wish I could figure out how to post these articles. They make some good points on how this may be resolved. Again I am not sure how, but I know the states will one day win this battle.
 

fire&ice

Ideal_Rock
Joined
Jul 22, 2002
Messages
7,828
----------------
On 11/25/2002 4:44:24 PM

I think Dell is one of those companies that states have coerced into disclosing their out of state sales? States are fairly tricky and they all collude in attempts to enforce taxes.

----------------


More than likely this is the case. VA required NC furniture dealers to supply records of sales to VA customers. Reasons - 1. to collect the sales tax 2. to take away a reason to shop in NC. The sh*t hit the fan here so to speak & many people were slammed w/ tax bills.
 

Rook

Shiny_Rock
Joined
Oct 4, 2002
Messages
294
Thanks Leonid.


Just a comment. There are two articles from Ohio there called "State-Use" Those are both the same except one is the full doc, and the other is just the intro. Same goes for the two Harvard articles.

Sorry for the confusion.
 

diamatuer

Rough_Rock
Joined
Oct 15, 2002
Messages
25
Rook,
I don't have time to read the articles you (and leonid) posted at the moment - but I will get to them. Also, I mostly work in international and corporate tax law area but have had to dabble in the state tax area from time to time - I am not an authority but can speak intelligently. Some points:
1) yes, the commerce clause is a powerful tool for the feds, but it also places a strangle hold on states - see Quill.

2) This is a strictly a state tax issue. The feds may want to help state budgets but don't forget taxes can be a political beast. If what you are saying is true, sales and use tax liabilities may impinge on citizens of states that do not impose sales taxes. Do the feds really want to get involved? No. I have not heard anything about these proposals, and this one is a big deal that I would have heard about.

3) This and any other laws would violate the moratorium on internet taxes, which I believe was extended. If you have time, you may find more on it if you do a search on senator (or rep) Cox. He was one of the primary sponsors of the original bill. The thrust of the bill is to prevent any NEW taxes from being imposed on internet transactions. Existing taxes applies to those transactions are okay. What you are talking about could be cosidered a new tax.

4) Aren't states in the process of signing the Streamlined Sales Tax model convention? I believe a number of states are in the process of signing on. They have been working on this for 2-3 years - as a direct result of the internet.
 
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