Vermont Use Tax Compliance on the Rise
- May 13, 2014 | Gail Cole
The 45 states with a sales tax all have a corresponding use tax, and taxpayers are required to remit use tax on taxable goods and services if sales tax wasn’t collected by the seller at the point of sale. Yet use tax compliance is voluntary and enforcement costly. As a result, states in need of use tax revenue are getting creative.
Vermont’s trick was to add a new check-off box to the 2013 Vermont State Individual Tax Return. It reads, “Check here to certify that no Use Tax is due.” It seems to be putting use tax on taxpayers’ radar.
Thus far, according to the Vermont Department of Taxes, 52% more people have declared a use tax--47% more than last year at this time. All told, the department anticipates 2013 will bring in roughly $1.7 million in use tax revenue (VPR). Seems worth a new check-off box.
Use tax v. online sales tax
These days, use tax liability is most typically sparked by online shopping, when a buyer purchases items from an online seller without nexus, or a sales tax obligation, in that state.* The number of states that don’t require remote retailers to collect sales tax is shrinking thanks to a variety of online sales tax legislation. But they’re still out there.
The landscape of remote sales tax collection is full of landmines. Different states have different sales tax laws, and those laws apply to different businesses differently. For example, if you live in New Mexico and purchase a book on Amazon.com, you owe use tax on that book because Amazon doesn't collect sales tax in New Mexico. But if you live in New Mexico and purchase an item online from SquareTrade through Diapers.com, tax is collected at the time of sale. On the other hand, Amazon collects sales tax in Arizona and SquareTrade via Diapers.com does not.
According to a Planet Money podcast from April 2013, about 1.6% of the taxpayers living in sales and use tax states actually pay the use tax they owe. Most of that 1.6% seems to be tax lawyers and accountants—the people who know what use tax is and don’t want to be found not paying it.
If individuals risk relatively little in ignoring use tax liability, businesses risk negative audit findings and penalties. Don’t put yourself at risk. Learn how sales tax Software as a Service (SaaS) handles use tax.
*Use tax is also owed when a taxpayer purchases a taxable good in a different state (one of the five without sales tax) and brings it home for use or storage.