Tuesday, May 11, 2010


Sales tax and the Internet

It’s long been popular to buy things mail-order from an out-of-state concern, in order to avoid paying sales tax on the items. Mail-order houses are often not required to charge out-of-state customers sales tax, the shipping charges are usually less than the sales tax would have been (and are sometimes waived entirely), and consumers think they’re getting away without paying sales tax.

What we often didn’t know is that when sales tax is not charged and paid to the state by the seller, the buyer is legally responsible for paying it anyway. We didn’t know that because states didn’t generally publicize that fact, and didn’t enforce it either.

New York decided to start enforcing it a few years ago. The trouble is that now they’re doing some double dipping.

First they set up a new line on the state income tax form, a line for declaring “sales or use tax” that you owe. Here’s the line from the 2009 tax form:
Sales or use tax line on 2009 NY state income tax form

The instructions explicitly forbid you from leaving that line blank — you can fill it in with zero, but that has to be explicit, and there’s a strong implication that doing so might result in an audit. Here’s the applicable page from the instructions (PDF), and here are some excerpts:

You owe sales or compensating use tax if you:

  • purchased an item or service subject to tax that is delivered to you in New York State without payment of New York State and local tax to the seller; or
  • purchased an item or service outside New York State that is subject to tax in New York State (and you were a resident of New York State at the time of purchase) with subsequent use in New York State.


An unpaid sales or use tax liability commonly arises if you made purchases through the Internet, by catalog, from television shopping channels, or on an Indian reservation, or if you purchased items or services subject to tax in another state and brought them back to New York for use here.

Example 1: You purchased a computer over the Internet that was delivered to your house in Monroe County, New York, from an out-of-state company and did not pay sales tax to that company.

Example 2: You purchased a book on a trip to New Hampshire that you brought back to your residence in Nassau County, New York, for use there.


Failure to pay sales or use tax may result in the imposition of penalty and interest. The Tax Department conducts routine audits based on information received from third parties, including the U.S. Customs Service and other states.

Then they give you a nice, convenient table that shows how much sales and use tax you should pay if you want to take the easy way out and not have to document everything: $23 if your adjusted gross income is between $30,000 and $50,000, for example, and $44 if your AGI is between $75,000 and $100,000.

And that’s all fine for what it is: it’s always been the law that these taxes be paid — though we can certainly argue that the example of buying a book while on a trip to New Hampshire is stretching the point too far (and they picked New Hampshire because that state has no sales tax of its own) — and this is a convenient way for the state to enforce it, and for the taxpayers to cope with it.

Is it “fair”? $44 represents, at my local tax rate, sales tax on about $600 worth of purchases. So they’re assuming that someone making, say, $90,000/year will buy around $600 worth of things by mail order (to oversimplify a bit). Just using my own purchases from 2009 as a guide, that seems close enough, though, obviously, different people will have vastly different purchase patterns. Some people buy a lot of things online, and some do almost none of their shopping that way.

But then New York did something else. They passed a law requiring that out-of-state companies that sell products to be shipped to New York charge sales tax on those purchases, and remit the tax to New York. The result was that some sellers stopped selling to New York residents, and others, such as Amazon, started adding New York sales tax to the bills.

In 2009, all of the out-of-state purchases I made were from vendors that charged me New York sales tax. Yet there’s still that pesky line 59 on the tax form, isn’t there? I put a zero on that line, but they’re clearly trying to intimidate us into not doing that, and into using the table to determine what should go there.

But if we do that, we are, for the most part, being taxed twice for our Internet purchases. By having both the new law and line 59 on the tax form (along with the ominous text in the instructions), New York state is trying to have it both ways, to have the vendors tax us and to have us voluntarily pay the tax again when we file our income taxes.

That’s why I can’t fully agree with the New York Times editorial blasting Amazon for resisting New York’s efforts. Amazon’s reasons may seem lame, but it’s trying to keep things equitable.

The right answer is for all vendors to charge sales tax, and for the state to stop trying to extort it from us after the fact.


Brent said...

@Barry - my sentiments exactly. It was one thing when Amazon purchases were free of tax, but now honest people are double taxed.

The tax form line is like the old protection racket - Nice Internet connection you got here. We would hate to see anything bad happen to the things you bought on it. Now, if you just pay this small amount, you can be assured that there will be no trouble...

The Ridger, FCD said...

Ummm... doesn't it say if you purchased it and had it delivered and DIDN'T pay sales tax? Doesn't that mean Amazon purchases are excluded?

Barry Leiba said...

Right. The point is that if all of your out-of-state purchases were from Amazon, the state is still pushing you to pay the "standard" sales/use tax anyway.