I'm A Scofflaw. And So Are You

I’m a scofflaw.

I’m stealing money from schools. From schools. And other important things like state parks. Roads. And all those ivory-handled back-scratchers they pass out to state legislators.

And my guess is, if you’re an Idaho resident, you’re a scofflaw too.

If you buy things online and don’t pay a sales tax – and there are few ecommerce sites out there that do collect sales tax by state – you owe the state money. And not by some new-fangled law taxing internet purchases. No, you owe the state money under a “use tax” law passed in 1965, well before Jeff Bezos was even thinking about getting bald.

The Idaho Statesman has the poop on this law here.

The math is pretty simple. The state tax commission estimates Idahoans spent $1.08 billion on online purchases in an average year, with that number growing. At six percent, that equals about $65 million in taxes. Most of that is going unpaid. In 2011, only 9,555 Idahoans paid an average of $56 in use taxes – or only 1.4 percent of those filing tax returns with the state also paying the use tax.

The Statesman skirts one issue: What happens to you if you don’t pay that tax? What are the penalties involved? Laws being what they are, the consequences appear murky, but this statute, requiring that anyone evading the tax be required to pay that tax once caught seems applicable.

But the situation gets murkier than that.

According to the US Small Business Administration – an official appendage of the federal government, businesses that conduct ecommerce are not required to collect sales taxes everywhere. Here’s the deal:

If your business has a physical presence in a state, such as a store, office, or warehouse, you must collect applicable state and local tax from your customers. If you do not have a presence in a particular state, you are not required to collect sales taxes.

Note the murkiness: Online businesses aren’t required to collect sales taxes. The SBA says nothing about whether or not purchasers area required to pay such taxes. So it appears we fall back to the state statute. And the state’s demands that the taxes be paid.

Additionally, if you’re looking to the federal government for clarification on this, that’s shouting into an empty room. The US Supreme Court decided this week not to take up a challenge to a New York state law requiring online retailers to collect state sales taxes, instead saying that job is one best left to Congress. And we all know how well that organization works.

The only thing that seems to save us is the bureaucracy. Per findlaw.com:

The sole difference between a sales tax and a use tax is the person that ends up giving the money to the state government. When it is a sales tax, the retailer is the one handing over the money, while a use tax is handed over directly by the consumer. However, collecting use taxes on small purchases often costs more than simply letting the consumer not pay the use tax. Instead, state tax agencies try to focus more on collecting use taxes for big ticket items that are purchased online with no sales tax, such as cars and boats.

However, there are a number of states that have stepped up their enforcement of their use tax laws and are now trying to make their state residents pay the taxes that should be paid. However, these states are still hampered by limited resources as well as the complexities involved with tracking down minor purchases and demanding that a use tax be paid.

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But to answer Mr. Incredible’s question:

Did I do something illegal?

The answers appear to point to yes.