Reporting Use Tax

Today TaxMama hears from TaxDaughter in the TaxQuips Forum, who just received some unpleasant news. “My new accountant asked me to give him a summary of all my Internet purchases. He says California will assess taxes on the Internet sales since they have been escaping tax before. 1. Is this a newly enforced California Law? Or this is because the new accountant is very meticulous? 2. I cannot find all the amount or companies I used in 2010. Is it my duty to find out the info?  3. Do I have to?  And what I should do now that I cannot give the precise amount?”

Dear TaxDaughter,

 Alas, it’s true.  This line was added to the Form 540, personal income tax return a few years back.  Many states have started to add this to their personal income tax forms to recoup some of the money they’ve lost since people started shopping online. This has had a major impact on state budgets.

It’s probably good enough if you make a reasonable estimate of your purchases where you did not pay sales taxes. Figure anything you bought on Amazon.com was not taxed.  Any other major purchases – you can probably estimate. You don’t have to work that hard going through your bank statements or credit card statements. If there is any place you shop regularly online, they will have a summary of your purchases.  Remember, some places DID charge you sales tax.

Some things don’t require sales tax – like services, which include web hosting, domains, etc. Think about it this way, for every $1,000 you spent online without paying sales tax, you will owe CA about $97. How may thousands could you have possibly spent online? Not that many, I’ll bet.

 And remember, you can find answers to all kinds of questions about sales and use taxes and other tax issues, free. Where? Where else? At www.TaxMama.com.

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