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SALT TALK:  The Use Tax - States Have Created Their Own Parallel Universe

Posted by Wayne Berkowitz CPA, J.D., LL.M. on Jun 20, 2016 1:00:00 PM
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Many science fiction adventures have posited the idea of a parallel universe, but to my knowledge we haven’t found intelligent life out there yet[1]. Readers don’t fret. If you had your heart set on discovering a parallel universe, just take the lead of state government. Go out and create your own.

The parallel universe created by the states is known as the Use Tax. This tax is a virtual mirror to the Sales Tax. It is imposed on the user of goods and services that would be subject to the Sales Tax but for the fact that the seller or service provider didn’t charge and collect the Sales Tax.

Consider that new 90-inch TV you just purchased from www.wedon’tchargesalestax.com. That’s right, your state is looking for you to voluntarily compute the amount that would have been charged as Sales Tax and submit it as Use Tax. Despite the mistaken belief that internet sales aren’t subject to tax, your state expects you to be a good citizen and hand over what you believed to be your savings.

As a matter of fact, most states make it very simple to comply. On your annual income tax return there is a line to remit the use tax you owe. Leaving the line blank is considered an incomplete return and putting in the wrong number is done under penalties of perjury. Data mining and information sharing[2] is an exploding area, so don’t think no one will ever know.

Some of our professional services clients are often surprised when they are subjected to a Sales and Use Tax audit. What could the State possibly be looking for? Legal services aren’t subject to the Sales Tax. Yes, but purchases of tangible personal property (computers, desks, etc.) are and if purchased from a vendor who didn’t charge the Sales Tax, you may owe significant sums. We advise our clients of this obligation and in most cases even insist they file a Sales and Use Tax return so that if something does slip through the cracks, the statute of limitations will limit how far back a liability may arise.

Wayne Berkowitz, a tax partner and head of the State and Local Tax Group at Berdon LLP, New York Accountants, advises on the unique requirements of governments and municipalities across the nation.

[1] Readers are you out there? Several entries ago I asked you to send me your unwanted compact discs. I haven’t received any yet.

[2] For years, states have been taking the information from customs forms completed at the airport and sending bills for the use tax to returning travelers. Shipping documents are also examined. Information sharing is also being compelled by statute – see my February 29, 2016 post, “No One Likes a Tattletale.”

Topics: SALT TALK

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