Sales Tax Slice: Revenue Department Holiday Wish Lists Include Use Tax Compliance, Will You Deliver?

This year's record-setting Cyber-Monday sales demonstrate the dramatic and continued increase in internet-based transactions. A major factor contributing to consumers' attraction to online purchasing is lower prices, which is frequently accomplished by sales tax not being applied to the transaction.

As many consumers are unaware that they are required to remit use tax to their state if an item would be taxable and the internet retailer did not collect tax on the sale, many state revenue departments have recently issued friendly reminders of consumer use tax collection obligations, especially relating to internet purchases. States issuing use tax reminders include California, Iowa, Louisiana, Michigan, North Carolina, Ohio, and South Dakota.

Raising consumer awareness of use tax obligations is already difficult with the prevalence of misinformation about internet sales being "tax free," and is further hindered by constitutional restrictions on state laws creating tax reporting requirements for retailers without nexus. Despite obstacles in disseminating tax compliance information, visibility of use tax obligations is on the rise.

A Minnesota House of Representatives 2012 policy brief of use tax collection reports that 25 of the 38 states that impose both a broad-based sales and use tax and a broad-based individual income tax, provide for use tax reporting on individual income tax returns. And, seven of the 38 provide information on use tax reporting in the income tax booklet, but do not provide a reporting line. For states that do not have use tax reporting on income tax returns, individual or consumer use tax forms are usually required to be filed separately, but are often readily available on state tax department websites.

By Christine Boeckel

Follow us on Twitter at: @SALTax
Join Bloomberg BNA's State Tax Group on LinkedIn