Tax controversy: paying online sales taxes in California

As California residents prepare to file their taxes, there is one thing that tax officials are concentrating particularly hard on: sales taxes on items purchased online. Under state law, California residents must pay a "use tax" on any goods purchased online from a retailer that is based outside of the state. However, most Californians do not pay the tax, and that could result in a number of tax controversies with officials.

Of course, part of the problem may simply be that people are unaware of the use tax. In 2010, only $11 million was collected from California residents. However, officials estimate that each year $1.1 billion in use taxes go uncollected.

To increase compliance, the California Board of Equalization has released a "lookup table." The table provides estimates of how much a person should pay in use taxes based on his or her income level. However, the table is just an average, and some people may owe substantially more or less than the provided estimate. Still, it is believed that the chart will almost double compliance and result in $10.6 million in more tax revenue.

In many cases, compliance with the use tax may be very difficult for consumers. That can be especially true for those who make most or all of their purchases online. However, 2011 could also be the last year for which Californians are expected to voluntarily report their online purchases. Starting later this year, online retailers will be required to collect the sales taxes, which currently isn't the case. For now, though, to avoid any tax controversy with state officials, taxpayers may want to fish around for those online receipts.

Source: The Bay Citizen, "California's New Tool to Stop Tax Evasion," Ryan Jacobs, April 5, 2012

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