Use Tax

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Anything that you buy online is subject to a use tax, and Stefanie Campbell, EA of the Campbell Tax and Financial Services, talks about the not new, but soon to be strongly enforced tax.

Ted Simons: Good evening and welcome to "Horizon." I'm Ted Simons. One of the attractions of shopping online is that you can buy stuff tax free. Right? Wrong. State law requires that you pay a use tax on items bought over the internet and out of state. It's a requirement that's not widely known. But state lawmakers are sending a reminder them passed a law in April that add as new line on individual tax returns for people to declare how much use tax they owe. Most folks hadn't heard a thing about this until the "Arizona Republic" ran a story over the weekend. A lot of folks now have a lot of questions. And here to provide a few answers is Stephanie Campbell, a tax professional known as an enrollment agent. Good to have you here. Thanks for joining us.

Stefanie Campbell: Thank you.

Ted Simons: OK. Did I explain that right? What's going on here with this use tax?

Stefanie Campbell: The use tax has been around since 1955. So it's not a new tax. But it's the most heavily underutilized tax, I think, in Arizona. The sales tax, it's confusing to people since we actually have a transaction privilege tax, but and now the sales tax. But the use tax is to be paid on any item that you purchase that you use in Arizona that you did not pay sales tax on.

Ted Simons: OK. So I buy a set of MP 60 left-handed golf clubs, on the internet, on E-bay from some dude in Wisconsin. Do I have to report that on my next return?

Stefanie Campbell: The answer is yes.

Ted Simons: OK. I bought the same MP 60 left-handed golf clubs from a company in Louisiana. Do I have to report that?

Stefanie Campbell: The answer is yes, if you did not pay sales tax.

Ted Simons: Folks haven't been reporting that kind of stuff.

Stefanie Campbell: No, they haven't. The only ones they have really been reporting is on vehicles, on cars that are purchased because you can't register the vehicle without proving you paid sales tax to somebody.

Ted Simons: OK. What if I buy a book on these particular golf clubs, on Amazon? How does that work?

Stefanie Campbell: That would also be subject to the use tax.
Ted Simons: So is there a minimum? If I buy a $3 watch, is that subject to the use tax?

Stefanie Campbell: In theory, the answer to that is yes. They have not established whether there will be a minimum amount that will be excluded. Or nor a maximum amount in that case.

Ted Simons: So what about traveling? You buy something in another state and you send it back to Arizona. How does that work?

Stefanie Campbell: If you did not pay sales tax, and you had it shipped into Arizona you are required to pay the use tax on that item.

Ted Simons: Is it true that businesses have been doing a better job of reporting this than individuals?
Stefanie Campbell: Yes. It's very much true. They have had an easy mechanism by reporting this on their TPT form, their sales tax form. And there's a -- you add it on to a line and it's right there. But the individuals have had to self-report and had to write a letter to report.

Ted Simons: Interesting. How much has the state been losing? Any estimates throughout?

Stefanie Campbell: I am not aware of an estimate.

Ted Simons: OK. But probably a whole lot, huh?

Stefanie Campbell: Probably.

Ted Simons: Yeah. And Arizona not the only state taking a hard line on this?

Stefanie Campbell: Arizona is not the only state taking a hard line. Illinois is extremely pick taking a very hard line and Wisconsin. California, those others, and in my practice, we have been reporting these use taxes to other states for many years. It's not a new tax. It's not a new concept but Arizona has not been cracking down on that.

Ted Simons: You mentioned cracking down. What happens if you don't comply? I mean, there's going to be a line now on the return. Correct?
Stefanie Campbell: Yes.

Ted Simons: Now, let's say I didn't buy anything on the internet. Or out of state. There's nothing to put on that line. Is that a red flag?

Stefanie Campbell: That has not been established. However, it is assumed that most people have bought something that's subject to the use tax in today's day and age with the internet usage.

Ted Simons: Boy, so those of us who haven't done much of that should better start stepping up.

Stefanie Campbell: And you better save your receipts.
Ted Simons: That's a biggie.

Stefanie Campbell: Yes, the receipts are very important and you need to keep all of your receipts and you need to start now if you haven't before and you need to go back and try and obtain some of those older receipts. But it's only starting in 2011 that they have said that at this point they are going to crack down. But you sort them into two piles. The sales tax and the nonsales tax-paid and you have two things you can add up your sales tax for the Federal deduction and see if you went over but you also have the amount of money for the use tax. And an example I wanted to mention is that if I buy shoes in Scottsdale that on my credit card statement, which is what possibly what they could ask for in an audit, it says that it runs the charge through Texas. So if I don't have the actual receipt for the shoes, that shows I paid the sales tax in Scottsdale, then, they could try and collect the use tax on that particular transaction.

Ted Simons: But wouldn't they know you got them at Dillard's or Nordstrom or something? They wouldn't know that just from the -- I mean --

Stefanie Campbell: They would. But you can order them online as well.

Ted Simons: I see what you are saying. Something you can get online, they don't know the difference because there's no receipt.

Stefanie Campbell: Right, if there's no receipt it could be subject to the tax.

Ted Simons: Well, when the return has the line and you are sitting there scratching your head trying to figure out. Will there be a table to help you, to give you --

Stefanie Campbell: There will not be a table. Other states have use tables on extensive work sheets but Arizona will not be providing a table. They will be providing a simplified work sheet that just says, put the amount of money here, and times 6.6% here and that's the extent of the help that they are going to be giving.

Ted Simons: It's not retroactive. Correct? You were saying starts with 2011?

Stefanie Campbell: They said they are not going to enforce back past 2011.

Ted Simons: That's what they say.

Stefanie Campbell: That's what they say.

Ted Simons: Yeah. Again, this is not a new tax.

Stefanie Campbell: No.

Ted Simons: Wait, I don't understand. This thing has been around for so long and know one seems to know about it.

Stefanie Campbell: Most people do not know about it and that's why I am here. I want to make sure that all of the taxpayers in Arizona know all the individual taxpayers are going to have this line on their return and they need to have receipts to back it up.

Ted Simons: Yeah.

Stefanie Campbell: One way or the other. Do you have a lot or a little? But you need to have receipts to back it up in case of an audit.

Ted Simons: If you haven't purchased anything online or out of state and you legitimately would leave that thing blank you might log into Amazon and buy a book?

Stefanie Campbell: I don't know that I would want to buy something just to put something on the line. But it does seem that that line will be somewhat of a target in the future.

Ted Simons: And when does this law take effect now?

Stefanie Campbell: It will be on the 2011 tax returns. So you will need to -- it will be available in January.

Ted Simons: So basically it's the next go around, then?

Stefanie Campbell: It's now. Right now is when you need to start taking care of your receipts.

Ted Simons: We got you. Thank you so much for joining us. Interesting stuff.

Stefanie Campbell: Thank you.

Stefanie Campbell: EA of the Campbell Tax and Financial Services;

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