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SALT TALK:  New Internet Taxes and Wayfair?  Don’t Forget the Use Tax

Wayne K. Berkowitz CPA, J.D., LL.M. 08.20.2018 | SALT TALK

Many science fiction adventures have posited the idea of a parallel universe, but to my knowledge, we have not found intelligent life out there yet.  Readers don’t fret.  If you had your heart set on discovering a parallel universe, just take the lead of state government.  Go out and create your own.

The parallel universe created by the states is known as the Use Tax.  The Use Tax is a virtual mirror to the Sales Tax.  It is imposed on the user of goods and services that would be subject to the Sales Tax, but for the fact that the seller or service provider didn’t charge and collect the Sales Tax.

For that new 90-inch TV you just purchased from www.wedon’tchargesalestax.com, your State is looking for you to voluntarily compute the amount that would have been charged as Sales Tax and submit it as Use Tax.  Despite the mistaken belief that internet sales aren’t subject to tax, your State expects you to be a good citizen and hand over what you believed to be your savings.

As a matter of fact, most states make it very simple to comply.  On your annual income tax return there will be a line to remit the use tax you owe.  Leaving the line blank is considered an incomplete return and putting in the wrong number is done under penalties of perjury.  Data mining and information sharing[1] is an exploding area, so don’t think no one will ever know.

Some of our professional services clients are often surprised when being subjected to a Sales and Use Tax audit.  What could the State possibly be looking for?  Legal services aren’t subject to the Sales Tax.  Yes, but purchases of tangible personal property (computers, desks, etc.) are and if purchased from a vendor who didn’t charge the Sales Tax, you may owe significant sums.  We advise our clients of this obligation and in most cases even insist they file a Sales and Use Tax return so that if something does slip through the cracks, the statute of limitations will limit how far back a liability may arise.

While the Wayfair decision is creating major compliance headaches for multi-state businesses, it simply is not creating new taxes.  The burden of compliance and remittance has shifted to sellers, rather than purchasers.  All the more reason to make sure stringent compliance procedures are in place.  No one wants to pay the tax for his or her customers. If this issue raises questions, contact me at WBerkowitz@BerdonLLP.com or your Berdon advisor.

Wayne Berkowitz, a tax partner and head of the State and Local Tax Group at Berdon LLP, advises on the unique requirements of governments and municipalities across the nation.

[1] For years, states have been taking the information from customs forms completed at the airport and sending bills for the use tax to returning travelers.  Shipping documents are also examined.  Information sharing is also being compelled by statute – see my February 29, 2016 post, “No One Likes a Tattletale.”

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