'use tax' on out-of-state gift?

The "first use" of the item would be in MA, so that's where the use (sales) tax would be owed, by the person who made the first use. (Based on my experience with taxes in my state; not sure if MA has exceptions).

I'd be very surprised if MA wasn't serious about collecting use tax owed on "only $15" purchases, there is no de minimis amount as far as I know.

Aside: Well, California certainly is. They're going after Amazon.com because of the [perceived] volume of business shipped by Amazon to California. However, a past effort to collect sales/use tax across state lines from a company that had no business nexus in state was shot down by the courts. As part of Gov. Brown's tax package, California is going to try again to hit out-of-state mail-order sellers up for taxes at the shipping source.

For tax year beginning 2011, according to recently passed legislation, the California income tax return will include a 'safe harbor' (my term) look-up table for estimating use tax owed, which the taxpayer has the option of including on the Form 540 income tax return.

"Safe harbor" in the sense that if you pay the amount calculated, they won't come after you down the road for a deficiency.

The way to do it would be for the states involved to enter into a compact that would require their respective citizens to pay the sales taxes in the other state, in one way or another. If they don't do that, their chance of success is low.

have they created the table yet? What is it based on, income? number of family members? Age? lifestyle?

That's Quill vs. North Dakota, a case that everyone interested in sales tax law should read.

By my reading of the decision, the problem with tax collection on out of state vendors is that burden that the tax collection process puts on them. This is not a small issue -- the number of different tax rates and rules is immense, and a 50 state sales tax software package costs something like $100K. The message was pretty clear that if the states got together and came up with a simplified collection process to minimize the burden on out of state businesses, that would be OK. I expect it would be something like one rate per state, harmonized rules about what's taxable, and a central point where you can send one return and they deal with forwarding the money to umpteen states.

Despite what a lot of people have claimed, it did not say that out of state tax collection was inherently unconstitutional.

I've seen some attempts by states to do this, but nothing that has come close to fruition. Speaking as the former mayor of a small municipality that gets a fair chunk of its revenue from state sales tax revenue sharing, I think it would be nice if the businesses that maintain buildings in our community and employ our neighbors could compete on a level plane with companies that don't.

Regards, John Levine, snipped-for-privacy@iecc.com, Primary Perpetrator of "The Internet for Dummies", Please consider the environment before reading this e-mail.

I had the same questions. Here's all I've seen so far, from FTB newsletter:

"Senate Bill 86 became law on March 24, 2011. This bill included several items which may affect your clients? tax return preparation next year. The provisions of this bill included the following:

Use Tax Lookup Table: We will revise the income tax forms and instructions to include a use tax table to allow taxpayers to determine the amount of use tax they owe. This provision is operative for purchases of tangible personal property made on or after January 1,

I live in California. A few DECADES ago, I ordered something from Sears to be shipped to Florida. Sears, doing business almost everywhere in the US, required me to pay Florida sales tax.

Bill

In CA, a resident who buys an item as a gift for which CA sales tax has not been collected and has it shipped out of state must pay CA use tax under CA law. The purchaser of the gift is considered to be the user. CA Regulation 1670.

I have no idea how many other states have this same rule.

New York has done this for several years. The amount is based on AGI. They have a table up to $200K, above that it's 0.041% of AGI. If you owe use tax on single purchases of more than $1000, you have to add them in separately. See NY Pub 774 for details.

My tax goddess says that it is not a good idea to enter a zero into the use tax line. One year I went through my receipts to figure out my actual use tax and it came out higher than the table amount, so I haven't bothered since.

R's, John

I wasn't aware of that CA reg, thanx for the correction.

"(a) GIFTS. Persons who make gifts of property to others are the consumers of the property and the tax applies with respect to the sale of the property to such persons."

In our example, the personal property was never physically in the donor's possession or use. I'm guessing the small size of typical sales/use tax dollar amounts are such that this would never be challenged in court, so CA BOE gets its way here (if it were CA in our example).

If MA also decided this property was taxable, is there any relief from double-taxation of use tax property? (probably not, I'm guessing).

If you are a vendor who is actually willing to collect sales tax (unlike Amazon), then who do you collect from? The billing addressee, or the shipping addressee? Sounds like CA wants you to use the billing addressee (which, in practice, is the only person you *could* collect from).

If the differential in sales/use tax rates is enough, then the donor should simply give cash to the recipient instead of ordering the item directly, then let the recipient order it. If there is a way to donate a "virtual" gift card (similar, say, to putting money in someone's Paypal account and then using that to make the purchase), then this would require almost no extra effort to implement.

Based on MA sales/use tax guide, you would only pay use tax if no sales/use tax has been paid or the amount paid was less than 6.25%. You would owe the difference to MA. So.. if the buyer was in CA and paid the sales/use tax to CA via his tax return, the recipient in MA would not owe any tax as I don't believe there is a location in CA that doesn't charge at least 6.25%.

But that situation is not the same because Sears had a presence both places.

In the OP, we're presumedly talking about a vendor which does NOT have a presence in the destination state (else the vendor would simply collect that state's sales tax and the question would be moot).

CA also has this form of "relief" too. From the 540 instructions, you subtract the amount of sales tax paid to the other state. They have this rule also for the use tax on a car purchased out of state.

BEGIN QUOTE 540 instructions

Use Tax Worksheet Use whole dollars only.

1. Enter purchases from out-of-state sellers made without payment of California sales/use tax. See worksheet instructions below . . . . . . . . . . . . . . . . .$ ________.00
2. Enter the applicable sales and use tax rate. . . . . . . . . . . ___________
3. Multiply line 1 by the tax rate on line 2. Enter result here . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$ ________.00
4. Enter any sales or use tax you paid to another state for purchases included on line 1. See worksheet instructions below . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$ ________.00
5. Subtract line 4 from line 3. This is the total use tax due. Enter the amount due on line 95. If the amount is less than zero, enter

-0-. . . . . . . . . . . . . . . . . . . . . . . . .$ ________.00

END QUOTE

That presumption is correct. - George (OP)

Unless the instructions say otherwise, that allows averaging to CA's detriment. (E.g. CA tax is 6%; TP spends $2000 in a 9% state, paying

Seth

I expect that's still true. But when's the last time anyone did that?

R's, John

See the part that says "See worksheet instructions below." Those instructions for Line 4 cap the amount at the CA rate. In your example, the $180 paid on the $2000 purchase would be capped at $120 on Line 4. The t/p would owe $60 in use tax to CA.

Worksheet, Line 4, Credit for Tax Paid to Another State ? This is a credit for tax paid to other states on purchases reported on Line 1. You can claim a credit up to the amount of tax that would have been due if the purchase had been made in California. For example, if you paid $8.00 sales tax to another state for a purchase, and would have paid $6.00 in California, you can claim a credit of only $6.00 for that purchase