Sales taxes have gotten a lot of attention in recent weeks, mainly because more than a dozen states opted not to collect them temporarily during back-to-school sales tax holidays.
But there is a similar levy that state tax collectors usually don't collect throughout the year, although they'd really like to have the money.
I'm talking about the use tax.
A state's use tax generally applies to the "use, storage or other consumption" of tangible personal property within the state even if it wasn't bought in the state. If it had been, it would have been subject to the state's sales tax.
The 45 states and Washington, D.C., that collect consumer sales taxes also have use taxes that are the same rate as their sales taxes. Exemptions also tend to be the same for both of the taxes. If you look at the sales tax holiday official language, you'll see that during those events, sales and use taxes are not collected.
Now about that collection…. That's where the trouble, for the states anyway, comes in.
Seller vs. buyer responsibilities: For the most part, sales taxes are collected and paid by seller.
Here in Austin, I hand over my $10.83 for a T-shirt. The store owner gets $10 to cover the cost of the shirt and then sends 63 cents (well, really 62.5 cents) to the state Comptroller of Public Accounts, 10 cents to the Austin Metropolitan Transportation Authority and 10 cents goes to the city tax collector.
With a use tax, however, the responsibility for reporting and paying the levy falls on the buyers.
One state's revenue office can't force another state's merchants to collect the out-of-state use tax. So the use tax is triggered when the buyer "uses," per the state's tax definition of that word, the property in his or her home state.
So if I had bought the same shirt in Oklahoma when I was up there visiting my mother, I would be liable for Texas' use tax by filing Form 01-156 when I got home.
Don't know, don't care: But that usually doesn't happen, in Texas or other states with use taxes.
Part of the reason is that most people don't know about or fully understand their jurisdiction's use tax law.
And if they do know about the tax, they just ignore it. Paying the same type of tax on one item in two places doesn't sit well with most folks.
That's the problem here in Texas. Form 01-156 tells me "Texas use tax is due regardless if another state's sale or use tax has been paid."
In my case, that means the $10 T-shirt I buy in Oklahoma City would cost me 84 cents in Sooner State and local sales taxes and another 83 cents in Texas use tax.
When it's a nominal amount as in the example, even a dedicated tax geek like me is likely to have second thoughts about complying. And if it's a lot more in taxes, pocketbook pressures increase the resistance to paying.
Some states do offer use tax credits against the other state's sales tax paid. In those cases, the hassle factor of paying becomes a factor.
Several states have added use tax reporting to their annual state income tax forms to make it easier for taxpayers. However, I suspect that convenience still doesn't bring in much use tax money.
Appealing to taxpayers: Rhode Island has a use tax information sheet that explains the reasons for the complementary tax and appeals to its residents' good citizenship to enforce the tax:
By paying the use tax on your untaxed out-of-state purchases, you do your part. People of conscience with a common purpose are capable of great things.
A similar attitude was expressed by a Boston Globe reader distraught that many of his fellow Bay State residents regularly shop in neighboring New Hampshire, which doesn't collect any sales tax.
"We're obligated to report and pay the use tax, which is for items bought in another state or online by Massachusetts residents but used in Massachusetts," wrote Herb Harris in a letter to the editor published in today's edition. "Failure to report and pay these taxes on one’s Massachusetts Form 1 is tantamount to tax evasion."
I appreciate the sentiments of and efforts by Rhode Island officials and Mr. Harris. Unfortunately, though, for them and their respective state treasuries, I suspect they are in the minority.
And until states can come up with a reliable third-party way to track residents' taxable out-of-state purchases, they will continue to lose this potential revenue.
No sales tax in...: I know you've been wondering since you saw the number 44 early in this post which states don't collect sales tax. They are the just-noted New Hampshire, along with Alaska, Delaware, Montana and Oregon.
Yes, that makes 49 states. Hawaii technically doesn't have a sales tax.
Our 50th state does, however, collect a general excise tax on businesses rather than consumers. But that 4 percent levy is passed along to customers, often without being specified on the sales receipt.
And like its strict sales tax counterparts, the Aloha State also has a corresponding use tax.