Unfair Taxation - Use Tax

On a prior blog post, I railed against the inherent unfairness of charging sales tax on an item more than one time, just because it changed hands - ie; auto sales.

Now I will describe a lesser known, but similar tax, called Use Tax, which applies here in California as well as many other states. Let's say you are traveling overseas and buy a keepsake item of value, let's call it $10,000. This keepsake comes home with you and you put in on your mantle for display. You are required to voluntarily report and pay Use Tax ($1,000 tax based on 10% rate) on this item because you are "using it" in California - the Use Tax owed is the Sales Tax as if you bought it in your city. This is the case too of any online purchases you make in which the seller does not collect sales tax. Basically, you owe Sales Tax based on your city rate, regardless of where you bought it in the world - if it wasn't collected at the sale, you need to voluntarily remit it though Use Tax.

Use Tax is tough to enforce sometimes, but the taxing agencies keep getting smarter. In my example of a keepsake of value, you must "claim" these items with customs when you arrive back in the US. Well, the State of CA will get the details of the claims from US Customs and then send you a bill for $1,000 - no joke!

Many online retailers have fought with the States as they do not want to be responsible for collecting and remitting Sales Tax for each and every transaction on behalf of each State. When they don't charge it, the Use Tax still applies and is the burden of the buyer. The States have their ways of getting information though, so don't be surprised if you buy a TV online for $1,000 and avoid sales tax on the purchase, only to find a Use Tax bill for $100 shortly thereafter.

Ouch right?

Brian