Last week at my other tax blog: High- vs. no-tax states; High court health care tax
Hand-rolled cigarettes to help pay for new highway bill, but passport tax axed

Texans, don't forget the use tax

As of today, Texans who buy items from Amazon will pay sales tax on those products. 

A lot of online shoppers, not only in the Lone Star State but also the five other states -- Kansas, Kentucky, New York, North Dakota and Washington -- where Amazon collects sales taxes are not happy.

"The negativity that arises from the fact that they know that the price is higher than what they could've paid or would've paid in the past can be negative enough, can be intense enough for them to actually not want to shop online," Raj Raghunathan of the University of Texas' McCombs School of Business told KUT-FM.

The fact is, however, that all those previous purchases where Amazon and other remote sellers didn't collect taxes, technically were already taxed.

States and DC with sales and use taxesTexas, 44 other states and Washington, D.C., have use taxes in addition to their general sales taxes. And that tally is this week's By the Numbers figure.

Understanding use taxes: Use taxes are the same rate as the states' sales taxes. They were created to minimize unfair competition between sales made in-state and those made out-of-state. Now you know the origin of the online vs. brick-and-mortar sales tax argument.

As the name indicates, the tax is based on use of the product in your home state although you bought it in another jurisdiction.

The most common instances where use taxes apply are online or catalog purchases on which you don't pay sales tax. But the laws apply to all buying situations, such as popping over a state line to pick up a product that's on sale or to take advantage of a sales tax holiday held in about a dozen or so states each year.

Regardless of how you obtained it, if you live in a state with a sales and use tax, you are supposed to remit the use tax on your out-of-state purchases to your state tax collector.

The use tax is due even if you physically bought the item in another state and paid sales tax in that selling state. Your state tax office is due its percentage for your use of the item where you live. In these cases, however, many states give you credit for the sales tax you paid elsewhere.

Several states also have a line on their personal income tax returns for use tax payments.

Collection complications: The reality of use taxes, though, is that they're actually useless taxes.

A University of Tennessee study estimates state and local governments nationwide will lose at least $11.4 billion in potential use tax revenues from e-commerce sales for tax year 2012. When factoring in catalog, phone and all other untaxed transactions made across state lines, the total uncollected sales tax balloons to nearly $24 billion.

Why so much missing money?

Most people don't know about them. So states have ramped up education efforts in recent years to make sure their residents know about use taxes. Oklahoma and Indiana officials, for example, launched use tax outreach efforts in connection with Cyber Monday sales.

Know, but don't care: But even after learning of use taxes, most folks ignore them.

It's a particularly difficult tax to collect in states like Texas that have no personal income tax. Since we Lone Star State residents don't fill out an annual state tax return, we aren't reminded at least once a year of our Texas use tax obligation, which we're supposed to meet by filing Form 01-156.

That's why Texas tax officials decided to take the path of least tax resistance.

They went after an online retail giant for sales tax money that all of us consuming Texans should be paying. The long-range goal is that all other remote sellers will follow Amazon and begin collecting sales taxes from me and my online buying brethren.

Frankly, the seller focus is much easier than continuing to bug millions of Texans about a tax that very, very few will ever pay.

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The use tax is due even if you actually purchased the product in another condition and compensated revenue tax in that promoting condition.

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