The Use Tax - Collecting Your Own Sales Tax
If you buy things online, there is a very good chance you are breaking laws in your state. Why? Under the Use Tax, you are supposed to be collecting your own sales tax and sending it in.
The web is fraught with peril for states when it comes to passing laws, tax or otherwise. Why is this? Jurisdiction is the legal term. The primary problem is the sites operating on the web appear everywhere, not just in a particular state. As a result, who has the right to pass laws regarding them?
When SPAM was such a huge problem, the states started passing laws regarding it. A problem quickly arose. When a spammer was caught, which law applied? Was it California, Virginia, New York, Florida and so on? The answer was none of them applied because the nature of the transaction was national. The CAN-SPAM Act was eventually passed and the state laws were terminated.
A similar situation arose with Internet purchases. States wanted to require websites to collect and pay taxes. The sites complained to the courts that this was a huge burden because they would end up having to track, pay and file sales tax returns for each of the 50 states. The Supreme Court agreed and struck down the relevant state laws.
The states have been unable to come up with a solution to go after internet sites, but that doesn’t mean they haven’t figured out how to go after you! Most have passed something called a “use tax.” This is a law that says when you purchase something and the group you purchase form does not collect sales tax, you must do it yourself and send it in to the state. For instance, assume you buy a book off of Amazon.com. You would be required to calculate what the sales tax would be for your state for the purchase, fill out the appropriate return for your state and send in the money!
As you can imagine, it is the rare individual that knows about this use tax much less actually pays it. That being said, it is a clear example of how states just don’t “get it” when it comes to the web. If you get audited, you might actually end up having an agent go through your transactions and total up the sales tax you should have paid. I kid you not, so beware!