Don't Mess With Taxes

For many international travelers, exploring another country offers a bonus: picking up a few items at the airport's duty-free store.

Duty-free shopping at the Oslo, Norway, airport; image courtesy Wikimedia Commons

OK, for some travelers, the tax-free airport shopping is the best thing about their trips. And they buy much more than a few items.

In case you've missed this experience, duty-free shops sell products without collecting the local import tax.

In Europe, duty-free shops in airports and ports are tax-free shops, too, which means you don't pay the value added tax, or VAT (aka Europe's version of sales tax), that in other retail establishments is included in a product's price. That could be sizable savings depending on what you bought and where.

Tax savings not guaranteed: However, like shopping anywhere, not every duty-free item is a true bargain. You'll find price differences that depend on geography and currency exchange rates.

"Duty-free is almost never a deal for the casual shopper out to get a bargain," said Jason Clampet, founder of the travel news website Skift, in a 2011 USA Today interview. "You can save significant amounts if you're a smoker who lives in a state with high taxes, but you'll find that electronic goods, beauty products and luxury items such as designer purses usually cost less at home or online."

So the shopping rule internationally is the same as it is domestically. Don't be lured by a tax-free gimmick, like U.S. states' tax holidays, into buying something or more than you intended for ostensible tax savings.

Paying the price upon landing: And remember, U.S. travelers, buying something in a duty-free shop doesn't necessarily mean you escape taxes.

The item is only duty-free in the country where you bought it. You might (probably will) have to pay a price when you get back home for bringing the foreign good into the country. 

Generally, a U.S. citizen who stays at least 48 hours in another country can bring $800 of duty-free merchandise home.

If you're bought more than that, expect a 3 percent surcharge on the next $1,000 worth of purchases. And if you really jammed your carry-on bags at airport duty-free store and have more than $1,800 in merchandise, the tax could be up to 25 percent on the amount that exceeds that dollar limit.

Duty-free tax troubles across the pond: Duty free shops in the United Kingdom's airports recently came under fire when it was revealed that some of them aren't passing on VAT savings to customers.

The VAT question came up when air passengers reported, largely through social media, that some duty-free shop staff had told customers that they could not make a purchase without showing their flight boarding documents.

Retailers don't have to remit the 20 percent VAT on everything they sell to passengers who are travelling outside the European Union. But there is no law that requires the purchasers to show their boarding passes.

And an investigation by the British newspaper The Independent indicates that the shops were using the flight information to avoid paying VAT.

In the wake of the reports, Financial Secretary to the Treasury David Gauke said VAT relief at airport shops was intended to lower the prices of goods for travelers, not to provide an opportunity for a bonanza to retailers.

Global travel tax issues: Savvy travelers are always looking for ways to save, and that includes paying fewer taxes when possible.

The hottest travel trend in today's sharing economy continues to be short-term rentals of private residences. This is common when a city hosts a special event, like the upcoming Pope Francis visit to Philadelphia.

As I noted last week at my other tax blog, when the popular Pope shows up Sept. 26 in the City of Brotherly love, both homeowners and Philly will profit.

The temporary landlords could pocket thousands free from federal tax as long as they follow the Internal Revenue Service rules. The Philadelphia treasury will benefit from taxes on the residential rentals.

Also over at Bankrate Taxes Blog last week, I looked at how a tax lien could affect actress Melissa Gilbert's quest for a suburban Detroit House seat. The child star of "Little House on the Prairie" has reached a payment plan with the IRS to cover her $360,000+ in overdue federal taxes.

I usually post my additional tax thoughts at Bankrate on Tuesdays and Thursdays. If you miss them there, check here at the ol' blog over the weekend for highlights and links.

You also might find these items of interest:

• Private and often untaxed home rentals under fire
• Court says travel websites must pay D.C. $61 million in taxes
• Major Greek archaeological (and tourist) site target of tax probe