This Tax Season, Don’t Forget Your Use Tax | Commentary

Posted March 30, 2015 at 5:00am

By Jody L. Padar As April 15 quickly approaches, tax-paying Americans are gathering their receipts and paperwork and breaking out the calculator. For some that means going to visit their accountant, for others it means downloading the latest tax software and for the traditionalists — filling out their tax forms with pencil and paper. No matter how you choose to take care of your tax task, there is one item on most state income tax forms that is often ignored. It’s usually found on the personal income tax form: “use tax on Internet, mail order, or other out-of-state purchases.” This is where taxpayers need to calculate the amount they owe in state sales and use taxes for the online purchases they made in the previous year.  

Many shoppers think they’re getting a better deal when they shop online. Most online-only sellers are not required to calculate or remit sales and use taxes. This highly inefficient system means that their prices are anywhere from 4 percent to 10 percent lower than brick-and-mortar retailers selling the same goods and it puts the onus on shoppers to remit use taxes come tax time.  

This not only hurts brick-and-mortar retailers who are at a competitive disadvantage and inconveniences taxpayers, it also impacts state coffers. With so many states strapped for cash, they’re looking for any opportunity to collect the revenue necessary to operate. Illinois, for example, even addresses it on their Frequently Asked Questions webpage and succinctly highlights why it is so important to pay this tax: “If you use goods in Illinois that were purchased tax free or at lower rates outside Illinois, you owe use tax to the department. If you do not pay, it is unfair to Illinois retailers, consumers, and taxpayers in the following ways: Illinois retailers, who must charge sales tax, are put at a competitive disadvantage as compared to out-of-state retailers, who charge no sales tax, or charge tax at rates less than Illinois rates.
Illinois must make up these lost revenues or curtail state services provided to consumers and taxpayers.”  

Many find doing their taxes to be stressful and it doesn’t have to be this hard. Earlier this month the bipartisan Marketplace Fairness Act of 2015 was introduced in the Senate. This legislation would make online retailers collect and remit sales and use taxes at the time of purchase. Brick and mortar retailers do this on every purchase already and there are several companies that offer online retailers the ability to fully automate tax collection and remittance, so we know it isn’t too complicated to do. This streamlined process would ensure that local governments get the funds they need to operate and even the playing field for brick and mortar retailers. It’s time for Congress to act.  

Jody L. Padar is the CEO and principal at New Vision CPA Group and author of “The Radical CPA.”

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