It’s increasingly difficult to ignore consumer use tax. Last week, both the California State Board of Equalization and the Indiana Department of Revenue posted notices about holiday shopping and use tax. This week, the Colorado Department of Revenue reminds Cyber Monday shoppers—and all online shoppers—that use tax must be paid if sales tax is not collected on online purchases.
People shop online because it’s convenient to do so. You can shop at any hour of the day. You can shop while wearing your pajamas. And people who live far from town can shop without spending hours in their cars.
But it’s getting harder to avoid taxes when you shop online.
No nexus = no sales tax = use tax owed
Some people shop online specifically because it can be less expensive to do so. Online retailers without nexus in the shopper’s state are not required to collect and remit sales tax, and sales tax savings can be substantial. Take Colorado: the state sales and use tax rate is 2.9%, and local sales and use taxes can raise the total rate to 10.4%. At that rate, sales tax on $250 worth of Christmas gifts amounts to $26. Buyers feel that.
And states feel its absence, which is why more and more states are actively reminding taxpayers of their use tax obligations.
Use tax = honor system
All states with sales tax have a corresponding use tax, as do most local tax jurisdictions. It was created to dissuade people from driving a few miles to shop tax-free, and it now applies to all taxable remote sales—mail-order, by phone, or online.
However, enforcing use tax is challenging. While audits can easily identify business use tax liabilities, it's more difficult to accurately determine how much use tax an individual owes. Of course, that doesn’t mean states can't hold individuals liable for use tax. They can and they do.
The Colorado DOR use tax notice states that “it is the purchaser’s responsibility to report and pay use tax” and that “it is easy to pay consumer use tax through [the DOR] free Revenue Online service.” Individual use tax in Colorado is due on income tax day, April 15.
Ignorance is no longer bliss
If it’s becoming increasingly difficult to avoid paying online sales tax, it’s also become more difficult to plead ignorance with respect to use tax. From departments of revenue are posting notices about consumer use tax obligations.
Does your business handle consumer use tax correctly? Are you sure?
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photo credit: Don Hankins via photopin cc
