California: Don't Forget To Pay That Use Tax

T'is the season for holiday shopping -- in stores, by phone, over the internet, and through catalogs. Recognizing this, the California State Board of Equalization has issued a news release reminding residents that they may owe use tax on purchases made remotely.

What is Use Tax

What is use tax, you say? Use tax is like a silent partner to a state sales tax; its purpose is to capture tax revenue from purchases on which no sales tax was paid.

Examples:

• A Washingtonian who drives across the Columbia River to shop without sales tax in Oregon owes use tax on the purchase if it is brought back home.
• An Alabama resident who purchases a pile of books through Amazon.com (and doesn't pay Alabama sales tax) is required to pay use tax instead.

Needless to say, use tax is hard to enforce, and relatively few people go out of their way to voluntarily pay it.

Remote sales -- those made by internet, phone or catalog -- account for the bulk of sales tax-free purchases these days. The more people shop online, the more states want their share of the lost tax revenue. Enforcing the use tax is one way to get it. Twenty-six states now have a line for use-tax liability on their tax returns.

So the California BOE is reminding Californians about the use tax law, one that has been on the books since 1935. It says that "[t]he average California family owes about $61 in use tax each year." Revenue generated by the use tax goes towards funding public safety programs, public education, and transportation

There are two ways to pay the use tax in California:

1. Register and pay on eReg after each and every purchase.
2. Include use tax as a line item on state income taxes, using use tax calculation based on adjusted gross income.