Online shopping? Pay the tax

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By: JIM VANDER SPEK - For the North County Times on March 21, 2004

Are you ready to pay a use tax? California rightly believes that it is not collecting enough of this tax. In fact, most people don't even know what a use tax is.

The use tax is the lightweight twin of the sales tax.

Although you think you pay sales taxes every day, the sales tax added to your purchases are actually owed and paid by retailers. It is a vital tax for California and its local governments. Cities compete fiercely for their valuable slice out of each sale transacted in their boundaries. In areas such as North County or Riverside County with lots of rival cities, the result is that vast valuable tracts of prominent real estate have been turned into commercial ghettos, full of car dealers and big boxes.

The big problem with the sales tax is the change in the way consumers are buying their stuff. When you purchase items from out of state by means of catalogs or on the Internet, California does not collect the sales tax if the seller does not choose to pay it.

Although you may correctly believe that you are avoiding the sales tax, you may not have known that for all such transactions, you still owe the use tax. This is because the use tax is owed by the buyer, not the seller, even though the rate is identical. It only applies in situations where the state does not collect its sales tax. In this sense, it is very comprehensive. Internet and catalog purchases, as well as purchases made by residents while traveling out of state, are all covered.

The effort now under way is to educate the public and to simplify the means by which people pay the use tax on all purchases that have escaped the sales tax. Basically, you are being asked to track all of such purchases, multiply the total by the 7.75 percent rate used in this area, and then pay this when you file your income tax return.

You can reduce this by any related sales tax paid to another state.You are asked to declare your tax on line 51 of the new 2003 California form 540. Before this, you had to search out an obscure form, fill it out and pay your tax in that way. Very few people were doing this.California is not the first state to use this straightforward approach.

Dozens of others have launched similar initiatives. All states with sales taxes are realizing that the sales tax is particularly susceptible to circumvention. What is unique is that California has added the same "use tax" line to other tax forms, such as on corporate income and information tax returns.

Everyone is being asked to kick in, including corporations and nonprofits, since it is not only individuals who are escaping the sales tax. For example, more than a few business owners have chosen to buy computers or other equipment and had it shipped to them from out of state after factoring in the sales-tax savings.

Jim Vander Spek is a certified public accountant with offices in Escondido. Contact him at Jimv@vanderspekcpas.com.