Topic: Internet Taxation Redux

[burmashave]

I had looked forward to an opportunity, now fairly lost, to discuss the growing trend of states now charging sales tax for out of state purchases.  We had a thread, but it dropped in to the Bridge of Death and not knowing the capital of Assyria, I did not make it across. ;-)  I look forward to that glorious day in which a discussion of side stand use can devolve -- in fewer than 4 posts -- into a discussion of how the War in Iraq is a ruse to make Dick Cheney rich (true or not, and a legitimate discussion for heated debate).

I know that Texas is now charging tax.  Who else knows of states that are charging tax, and how much?  The thing is, I live in New York, and I'm guessing that we charge taxes for out of state purchases, but I wouldn't know because it doesn't affect me.

What I do know is that our state income tax form now requires a figure for untaxed out of state purchases.  Without incriminating myself, I know this guy who does most of his purchases online, and usually runs up a good number in this category.  He's not keen on Internet taxation, especially because a purchase from Texas would actually be taxed by both Texas and New York.  If Texas charges only a 3% rate, this means that my friend would always run an extra 10% on Texas purchases.

What my friend does is this.  He figures that his income level and age put him into an IRS profile that does a fair amount of Internet purchases.  He does not keep a tally of all Internet purchases.  Instead, he uses a random number generator to come up with a reasonable figure.  Note that humans are absolutely incapable of creating their own random numbers.  The IRS flags returns that have suspicious groupings of numbers that seem non-random.  (For those who are picky, random number generators do not produce truly random numbers.  Instead, random number generators produce numbers that are "pseudo random;" however, these numbers can easily be as random as can be determined by an external source.)

It'd be cool to keep a running FAQ about Internet taxation because many of us could share info that would save us bucks.  Also, for those of the truly motivated type, I'd like to know where I can sign petitions to tell my state and Congress to keep their laws off my money.  Wishing that I still lived in the fair land of New Hampshire,

I am,

Burmashave

P.S. I truly hope that I have not offended anyone.  Please do PM me if you feel at all that I have.

[dusterdude]

didnt hurt my feeling

[nickjtc]

Alas, I suspect that it is only a matter of time until the powers-that-be make a serious attempt to recoup 'lost' taxation revenue. Especially from such a mega money maker as eBay. I think that internationally no one will be spared, unfortunately.

There is already talk here in BC (which has a provincial sales tax) about mandated taxation on purchases made in next-door Alberta (which does not have provincial sales tax). Hard to enforce, but you know bureaucrats.............

[Bob Wessner]

Sadly, if they were to come up with some standards for reporting and exchanging the data (ANSI maybe) it wouldn't be that difficult to establish the technology to do this automatically regardless of what state you lived in, or purchased from.

[super pasty white guy]

According to this article http://news.com.com/States+yearn+to+collect+online+sales+taxes/2100-1028_3-5672198.html, all states with a state sales tax also have a "use" tax on the books.  I wasn't able to find a definitive list of states with use taxes in my brief search, but if your state has a sales tax, it appears that you're supposed to report your mail order sales and pay up.

Dave
 

[edbikerii]

1.  If your state can't get the out-of-state vendors to report (and collect) your sales tax, then why should we report?  There's no way for your state to know if the vendors don't report.  If there were, they would either just send us a bill or prosecute EVERYONE for tax evasion.

2.  (pseudo)Random numbers are not right.  Prices are not set at random, they are set by people.  Their sums are not random either.  So any number NOT meeting the non-random guidelines would be flagged as bogus.

3.  What happens if you make a mistake and miss something you bought online.  Later your state finds out (somehow).  Now what?  Are there any penalties?   I guess you'd have to pay the underpayment plus interest, right?  So what?  How much is that for most of us anyway?  Worth the risk of not collecting/storing/reporting every purchase you make?  Who cares?

4.  It would probably cost more to keep track of the purchases every year in order to report them.  You'd have to buy a computer and software to keep track of it all.  Hey, now there's an additional perfectly justified expense for us to write off (tax preparation expenses) on our FEDERAL tax returns!!  Now your PC is a tax writeoff as well as a time waster, all in the name of out-of-state sales taxes.  How long do you think the IRS would put up with PC deductions so that the states could collect their meager sales taxes?

5.  What about 1-800 order lines?  This isn't just Internet taxation, right?  They've been trying to get their grubby hands on out of state mail order for decades with no success, why all of a sudden are people letting them get away with it?

6.  What about driving across state lines to avoid sales tax?  Yes, from time to time they police the parking lots in Northern NJ's malls for cars with NY plates in order to harass them to fill out some out-of-state tax forms.  However, even the simplest answer (it is a present for my friend who lives in Anyplace, NJ), is enough to be in compliance.  If they persist, then tell them to bug off, as you haven't crossed any state lines, thus haven't violated any laws.  Not a cop in the land can do a thing to you.

We are Americans, after all.  They can't just walk all over us unless we let them.

[burmashave]

...2.  (pseudo)Random numbers are not right.  Prices are not set at random, they are set by people.  Their sums are not random either.  So any number NOT meeting the non-random guidelines would be flagged as bogus....

Makes very good sense, as does the rest of your post.  I recall reading that the IRS does check for randomness in numbers.  Perhaps they do it for numbers, such as wages, interest, etc., that would have greater randomness.  Then again, mebbe it's just fear of the bogeyman.  The IRS audits whom it wishes; however, they do profile.

I would think that the IRS is going to find out how much your purchased out of state by credit card, banking, etc. records.  This would happen only after an audit.  Reporting $0 would seem to invite an audit, especially considering the climate in places like California.  From Super Pasty's link:

That leaves the estimated $1.34 billion left to collect. "We're always following leads that are given to us, whether it's another government agency or an individual, to look into the possibility that somebody might owe us use tax," [Anita] Gore said.

 

[edbikerii]

Yes, the IRS profiles by percentages.  i.e., if you make $100K and claim 20% as charitable deductions, you'll probably get audited.  Even TurboTax runs an "audit check" on your return to warn you of anything the IRS might think is questionable.

The IRS could care less about STATE sales taxes.  There's nothing in it for the Fed.  Besides, putting down $0 on a line in a tax form is not evidence that you have made any online out-of-state purchases, despite how much they might like to assume you have.  They would only be able to subpoena your credit card records if they had some credible evidence that you were evading taxes that could only be proven by those statements.  If you produce receipts for all of your deductions, then they have no legal reason to prosecute.

Your state, on the other hand, would go broke trying to prosecute if everybody just put $0 on the tax form.  All good Americans should simply put $0 on their state tax form and let the states prove different if they can afford it.  If they could afford to build, and could ENFORCE that tracking system, they would already be tracking it.  Simply reporting $0 doesn't prove you are a "tax evader" because "it doesn't seem credible" in their eyes.  Let them try to prove it!

Don't forget, either, that many mail order shops know that they get lots of business because many customers don't want to pay state sales taxes.  If these vendors start reporting or charging sales taxes, then use other vendors who don't.  Better yet, call the vendors up and tell them why you won't be using them first.  If you were a business in TX, why would you want to give NY any information anyway?  NY has no legal jurisdiction over businesses in TX or any state other than NY.  The only thing you would accomplish by complying with a state other than your own is to guarantee that you'll get less business from customers in that state.

Frankly, I think it is all a big scam.  I don't believe that other states have any legal authority to charge sales tax anyway.  Interstate commerce has long been a bone of contention between Fed/State.  The states are just hoping that some percentage of taxpayers will be scared enough of the Tax Man's "omniscience" to claim an amount.  INSTANT TAX WINDFALL - no prosecution necessary.  There have always been separate tax forms that you were supposed to fill out to report these taxes, but now they've just brought them onto the main state tax forms, in order to bring it to the front of the taxpayer's mind.  Simple psychology.

...2.  (pseudo)Random numbers are not right.  Prices are not set at random, they are set by people.  Their sums are not random either.  So any number NOT meeting the non-random guidelines would be flagged as bogus....

Makes very good sense, as does the rest of your post.  I recall reading that the IRS does check for randomness in numbers.  Perhaps they do it for numbers, such as wages, interest, etc., that would have greater randomness.  Then again, mebbe it's just fear of the bogeyman.  The IRS audits whom it wishes; however, they do profile.

I would think that the IRS is going to find out how much your purchased out of state by credit card, banking, etc. records.  This would happen only after an audit.  Reporting $0 would seem to invite an audit, especially considering the climate in places like California.  From Super Pasty's link:

That leaves the estimated $1.34 billion left to collect. "We're always following leads that are given to us, whether it's another government agency or an individual, to look into the possibility that somebody might owe us use tax," [Anita] Gore said.