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The Almighty Buck United States Your Rights Online

20 States Collecting Internet Tax 62

Posted by timothy from the good-to-live-in-washington dept.
Patik writes "According to this AP article, twenty states, including New York and California, are "requiring taxpayers to declare any tax they owe on out-of-state purchases," targetting Internet sales. New York expects this to bring them $2.5 million this year while California expects $13 million. Many are cynical about the new push, saying taxpayers will simply leave the line on the tax form blank, though the IRS says they will audit any offenders."
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20 States Collecting Internet Tax More

20 States Collecting Internet Tax

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  • It's not new, nor "Internet" (Score:5, Insightful)

    by DynaSoar ( 714234 ) * on Saturday March 06, 2004 @08:03PM (#8487985) Journal
    It's only being made an issue due to the increased use of out of state mail order. That's what buying stuff over the net is. States have always required people to declare out of state purchases if the person declared at the time it was for delivery out of state.

    My father's TV shop was 3 miles from a state line. He regularly had people come to buy TV and such to be delivered 'out of state' and so didn't have to pay him sales tax. They were supposed to declare it on their state tax form. Sure, few did. Sure, far more are doing this now. But it's nothing something new specifically aimed at the net.

    • Exactly. Another case of Slashdot getting its collective panties in a bunch and crying "erosion of our rights!" when in reality nothing has changed.

      In most (all?) states that have sales taxes, they also have a "use tax" at the same rate which is applied to items purchased and brought into the state. Failure to pay this is tax evasion (though it's next to impossible to enforce).

      About the only cases in Massachusetts where this is collected are cars, boats, and other items where registration is required.

    • Stores around here require proof of state sales tax exemption. Just saying you are 'out of state' won't cut it.
    • No, it's not new. We've long done this sort of thing.

      Also, when I lived in Boston, the commonwealth added an "underground income" tax. If you made money illegally, like by selling drugs or robbing a bank, Mass. expected you to declare that as income and pay taxes on it. To my knowledge, though, no one drove to New Hampshire to do drug deals just to avoid the tax...

  • IRS says they will audit any offenders (Score:2, Insightful)

    by Anonymous Coward
    So the IRS is enfrocing state taxes now?

    Someone needs to be bit more careful attributing quotes.

  • Where do I pay the tax? (Score:5, Funny)

    by crow ( 16139 ) on Saturday March 06, 2004 @08:16PM (#8488066) Homepage Journal
    So if I live in Massachusetts, order something from Amazon, but have it delivered to my in-laws in New Jersey, who deliver it to my Uncle in Long Island for his birthday, which state is supposed to get the tax?

    • Re:Where do I pay the tax? (Score:3, Informative)

      by Anonymous Coward
      massachusettes, your domicile.
      • What if he orders from an offshore ship shooting a bird? OR I have a small aluminium dingy and a laptop, if I could setup a small directional antenna and a few transceiver buoys I could save like 100 dollars a year, muhahah.

    • Re:Where do I pay the tax? (Score:4, Informative)

      by AKnightCowboy ( 608632 ) on Sunday March 07, 2004 @12:35AM (#8489203)
      So if I live in Massachusetts, order something from Amazon, but have it delivered to my in-laws in New Jersey, who deliver it to my Uncle in Long Island for his birthday, which state is supposed to get the tax?

      If these are the same as the Ohio Use Tax, then you pay the tax wherever the item will eventually reside, in your case Long Island. So for example, I buy a computer from California and have it delivered to Ohio I pay my Ohio county's sales tax rate as a "use tax". Actually, from what I understand of the law, if I buy a computer in an Ohio county that has a 6% tax rate and bring the item back to my county where I live where the tax rate is 8%, I owe the state 2% use tax. That's bullshit IMHO. It's entirely voluntary compliance though and Ohio has no authority to regulate interstate commerce so I'm not sure how they could ever hope to enforce this.

      • Actually, it would be Massachusetts tax - at least the way it works in Michigan. He's buying it. The transfer over to Long Island is as a gift. It's "purchased in" Massachusetts ("billed to" may be more accurate), and I think that's where the tax comes from. The IRS has no way of knowing he's going to give it to his uncle, wether the uncle's in Long Island or Uzbekistan.

  • not a bad move, maybe (Score:5, Interesting)

    by MacAndrew ( 463832 ) on Saturday March 06, 2004 @08:22PM (#8488096) Homepage
    most all of us (er, not me) violate the "use tax" rules in our state with out-of-state purchases, except those in states without sales/use tax (lucky). but before you had to fill out a separate form and anyone would feel like a chump volunteering to pay a tax the state would have a heck of a time enforcing and none of their neighbors is paying.

    putting it on the main form will at least get money from more people, not such bad thing, and if you're dishonest you should still appreeciate it because it will lower your taxes otherwise due. heck if it's in on the main form maybe i'll pay it just as, er, i've been paying it all along of the separate one.

    if you have a problem with the collection of the tax, bear in mind your problem is with ALL sales taxes, not the "internet" flavor of some of those purchases. (hey i don't like them, i think they may inhibit commerce.) one way to ease the recordkeeping burden is to provide, say, a $1000 exemption so many people don'thave to think about it. and from a recordkeeping standpoint, it may actually be a favor for out-of-state merchants to collect the tax for you. i think asking consumers to keep the records is nutty, we have better things to do. (btw, sales tax could be made deductible for federal purposes, it once was, as state income tax is now.)

    personally i'd nationalize sales tax if we're going to have one at all, the present system only works because it is unenforced. way too inefficient, both for recordkeeping and enforcement. of course getting all 50 states to agree on tax policy is ... fanciful.
  • I'm glad my state doesnt have an income tax, where we have to list that crap. So which is better now, a Use tax or Income tax. ;)

    Government's view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidise it. - Ronald Reagan

  • IRS? (Score:3, Insightful)

    by capoccia ( 312092 ) on Saturday March 06, 2004 @08:44PM (#8488206) Journal
    the IRS says they will audit any offenders.

    I don't think the IRS will be involved. The IRS is for federal taxes. The state tax auditors (if there are any) will do the investigating. If you do get audited by the IRS. only show them your federal forms. Unless they have a need to know, your state forms are none of their business.

    • Re:IRS? (Score:3, Insightful)

      by BrookHarty ( 9119 )
      The state tax auditors (if there are any) will do the investigating.

      So, like the IRS, state tax auditors will have to find people to go after, and then treat them like criminals. Then the state offices can hire more people, and go after more criminals, er tax payers, growing in size. You didn't pay your 12 dollar tax on books at barnes and noble, here is a 1000 dollar fine, or worse, they take your house.

      Really sad, all these agencies without oversight, they can go after people without any legal standin

      • Re:IRS? (Score:3, Interesting)

        by capoccia ( 312092 )
        So, like the IRS, state tax auditors will have to find people to go after...

        The IRS is barely investigating anyone, and they have a much larger enforcement budget than any state. Tax law enforcement by states is very low.

        • Re:IRS? (Score:4, Insightful)

          by BrookHarty ( 9119 ) on Saturday March 06, 2004 @10:35PM (#8488722) Journal
          Well, I know many people who had run ins with the IRS, also you can search google for stories. It happens more than you think.

          Police already make a profit on busting criminals, parking/speeding tickets, fines. Why wouldnt the State tax collectors go after people for money? Thats the whole point of the article.

          Have companies report sales to states, so states can go after people. Treat everyone like criminals. It even states that in the article.

          The states might have little to do now, but if theres money involved, expect it to get bigger.
          • Have companies report sales to states, so states can go after people. Treat everyone like criminals. It even states that in the article.

            This is why a few years ago durring the Newt Gingrich era that the rules of evidence for the IRS were changed. Used to be the IRS could say "PROOVE YOU HAVE PAID YOUR TAXES!" and the burden of proof was on the accused. Now the IRS has to have probable cause and now has to proove that you did not pay your share. They can still access your records, etc... but have to hav
  • I would pay if the money was used as a subsidy for "fiber to the curb."

  • IRS will audit any offenders (Score:4, Funny)

    by lordfoul ( 108260 ) on Saturday March 06, 2004 @10:43PM (#8488748)
    IRS: You left this line blank. Are you trying to tell us that you have not made any out of state Purchases?

    Consumer: Yes.

    IRS: Can you show us your out of state reciepts to prove your claim.

    Consumer: Uhh .. what?? I said I didn't make any out of state purchases.. !

    IRS: Damn that usually works.


    • Yeah, this whole sales tax issue is already a disaster, because it would require the taxpayer to keep proof of increasing his/her tax liability. This is complete backwards from when people could keep receipts as proof of reducing tax liability.

      A voluntary tax is like a voluntary castration. I'm sure they have people signing up in droves.

  • POS is the only way to make this work (Score:2, Insightful)

    by Anonymous Coward
    Unless the tax is collected at the point of sale, I don't see this working.

    I mean, obviously hardly anyone keeps track of all that stuff. It's a huge pain in the ass. If it was collected at purchase time then it would be a whole lot more normal (you know, like when you buy stuff in-state).
    • OK, so picture you're a small business owner. Do you really want to be a tax collector for 50 different states, sending each regular cheques (although not too regular, I'm sure each will have their own payment schedule) and opening yourself to audits for every one? Oh, and lets not forget, you don't get paid to do this and if you screw up you can get fined for everything you own.

      Wow, that sounds like it will really encourage people to sell you stuff online. Not.

  • how wil they know and... (Score:3, Insightful)

    by josepha48 ( 13953 ) on Sunday March 07, 2004 @12:07AM (#8489106) Journal
    ... what's the difference if I go to the other state and buy the product in that state and bring it to CA?

    If they want to really collect tax they need to find a way to make the seller responsible for collecting the taxes not they buyer to report them. So now what, all companies in CA who buy things from CDW or tigerdirect are suppose to report how much they bough on the internet and then report that to the IRS? That will create a tax nightmare. Good luck to them at auditing!

    • you pay the taxes in that state when you purchase the item. This only works if you go to a state without sales tax like new hampshire (the one i can think of off the top of my head). The law though also states that I should be paying taxes on those items that i buy in NH.

      Of course my issue is if purchase something out state and pay taxes there do i have to pay taxes in my home state as well?
      • yeah, that's true. and when you bring that item back to your home state, you don't pay taxes on it again and are not required to either. essentially what they are suggesting is almost an import tax, between states. I could see paying taxes in the state that is selling the item, but not the state that I live in. Again, I think the business should have to pay the tax on their sales and then pass that to the end user / buyer. That is the only way it would work.
        • AFAIK, that's actually how sales taxes work [1]. It's a tax on the seller, agreed to through the business license, for the priviledge of being allowed to conduct commerce within the state. And states allow the licensee to pass the tax directly on to the purchasers. [1]. That's how it was implemented oh so long ago, but gov'ts in general are happy to let knowledge of how it's setup erode until people are forget about their rights. So now states assess sales tax on purchasers when it's really a tax on the
          • I actually think what the problem is, is that these states have such huge budget deficits ( California in particular) that they are looking for ways to generate income. I think ultimately this may end up in court though.
  • This concernes me for the following reason States do not have teh right to tax things outside of their own borders. If a transaction takes place across that states borders what allows them to tax it In some ways ( taken to its logical extreme) its like Texas saying it is going to tax all transactions in Massachusetts. Now if the Federal Govt wanted to tax sales across the borders this would be legitimate ( state's borders that is). Of course it will take a contest case to sort it all out.
    • That's why they call it a "use tax", you aren't being taxed on the sale, you are being taxed on the value of the item that you are using in your state of residence. It sounds lame, but the Supreme Court has said that it's constitutional. Some places have a personal property tax, which is an annual tax on the value of your possessions, mostly applied to cars and boats.

      The simple solution would be to eliminate use taxes and tax all sales where the sale is made. Buy a computer from a firm in California? They

      • Do you know the case that said it was constitutional? Because, to the best of my knowledge, it has yet to be challenged.

        • Re:Across state lines (Score:3, Informative)

          by Detritus ( 11846 )
          You might start here [findlaw.com], it's a Supreme Court decision on sales tax and use tax. It has plenty of footnotes and references to earlier decisions.

          My reading is that the Supreme Court allows use taxes as long as they do not penalize interstate commerce. Your use tax rate may not be higher than your sales tax rate.

          • ah but if you read teh majority opinion you find the key phrase " 1 Thus, under these various provisions, the State imposes a statewide sales tax of 4.225% on sales of goods within the State and a statewide use tax of 4.225% on goods brought into the State after being purchased elsewhere. These taxes are not challenged here." the key being the last line the usage tax was not challenged now its been more than a few years since I studied Con Law ( 19 in fact ) but the challenge seems to have been based off o
      • I agree. It sounds very lame.

        The US Constitution was written in plain English by business men and farmers.

        Use tax? It shouldn't make a difference what you call it.

        What is it about Article I, section 9:
        "No tax or duty shall be laid on articles exported from any state"
        That the Supreme Court doesn't understand?

        Kinda like civil forfeiture where some small town rouge cop can make up a story that he found a marijuana roach in your vehicle and seize your $300,000 Bentley. Yet the Fifth Amendment clearly states
      • Sales tax includes use tax because the use of items is the same whether bought on or off line. When states set use tax = sales tax they imply that the sales tax portion of the tax is zero. This implies that all the traffic infrastructure, security, and other services provided by governments to support merchants costs nothing. (Not to mention the tax breaks that government gives to merchants to get them to locate in their jurisdiction so that they can collect the sales tax from that merchant.)

        There is mo
  • Recent legislation in California has it that the Franchise Tax Board is now collecting a "use tax" on the 540 (this is the CA equivalent of the 1040) for the Board of Equalization (they who administrate sales tax). The idea is that they are basically collecting sales tqax on items purchased out of state.

    Mind you, they won't go after people who purchased t-shirts or books, they're pretty much looking for people who purchased (say) boats or cars from out of state.

  • Well, since I live in Oregon and we have no Sales Tax, I do not have to pay any tax on purchases made out of state.

    However, if I sell something online, there is no change to that policy. Realistically, if you barter (ie: no cash involved at all) you are legally required to fill out the form 1099-B Miscellaneous Income.

    That income is on the Federal form, but the state form uses the Gross income from the Federal form -- thus it gets counted on your state form whether they have any lines for it or not.

  • Just another squeeze... (Score:3, Insightful)

    by dhall ( 1252 ) on Sunday March 07, 2004 @03:39AM (#8489710)
    It's no secret that most states are hurting when it comes to their most recent budgets. Taxing the internet sounds good on paper for most of these politicians, and in a lot of ways it's just another form of locaization.

    When most people purchase, they do so with the expectation of delivery charges. Catalogs are similiar. Whatever you don't pay in state tax, you will normally pay for in shipping fees.

    The "Use Tax" is absurd. If the states which wish to impose sales tax on internet purchases, it should only to ONLY the stae in which the company resides. This would make states compete for the business of such companies. States would soon learn it's far better to not charge end users, but directly tax these companies earnings their the income of their employees.

    Yet another form of short term legislation, which can't see beyond the next hill.

  • Hmmm (Score:1, Funny)

    by Anonymous Coward
    I sense a great disturbance in the force, as if thousands of online retailers all moved to Mexico or Canada all at the same time. No, it was probably nothing.
    • If they did, then there would be import duty as well, and there would be federal record of the purchase for the states to go after for use taxes.
  • I think if more than %50 of the people ignore this, they simply won't have to the resources to aduit a signifigant portion of the possible offenders to make it worth while. If %80 or more of the people ignored it, it would probably take so much manpower that they would just have to give up on it altogether.

    I suppose the same holds true on a larger scale, if no one paid their taxes at all, where the hell would they start? But when was the last time everybody agreed on anything.
  • I dont think it's right for them to expect us to save every internet transaction to collect taxes on the items. It's the responsibility of the vendor to collect said tax not the purchaser.

    Someone in one of those states should file a lawsuit against their state for such stupid tax collection.
  • Auditing the offenders wouldn't be so bad. There are only, what, 16 million people in the whole state? Probably half of those [nclnet.org] purchase online. 8 million audits wouldn't put too much of a strain on the system.

  • Wait a second here. (Score:3, Insightful)

    by /dev/trash ( 182850 ) on Sunday March 07, 2004 @01:39PM (#8491404) Homepage Journal
    Why would the IRS audit my STATE tax returns?

    • The Congress has power to regulate commerce among the states through agencies that it legislates into existence. Perhaps twenty states got Congress to add use-tax enforcement to the IRS's duties.

  • This is isn't new. Growing up in the NYC-area we always heard tales of NY state officials recording NY license plate numbers in NJ malls to subpoena credit card records.

    But I think the interesting case in the context of /. is cigarette sales, because states are specifically going after internet sales and not other cases such as residents driving to a neighboring state with lower taxes. In one case, Massachusetts [boston.com] is not only going after the resident or requesting customer details from the merchant, but t

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