Use Tax?

Dsloan · Jul 25, 2023

Fellow Collectors: have any of you been hit with a "Use Tax" assessment from your state comptroller? I bought a watch from Japan via Chrono24 back in February, and I just received a letter from the comptroller indicating that I owe my state a 6% fee. I just sent them the sales information (which shows I already paid 6% in taxes when I made the purchase).

While I wait for the slow wheels of state government to respond to me, I was just curious if anyone has had issues with this on imported watches before. I hope, in this case, that the state is just wrong (tax was paid). But, is the state expecting me to document any purchases in which no tax was paid and kindly mail them a check for 6% of my own volition? Like, if I buy a watch at a flea market in NY and bring it home to my state, am I supposed to self-report?

mbp · Jul 25, 2023

I've never heard of this. Where are you located?

Dsloan · Jul 25, 2023

mbp
I've never heard of this. Where are you located?

Maryland!

mbp · Jul 25, 2023

I've bought from Japan as well and have not had my state (IL) ask for anything of this sort.

gbesq · Jul 25, 2023

In a word, yes. Use tax is simply the equivalent of your state's sales tax on goods that you purchase from out of state (or out of the country) and on which the seller did not charge and remit sales tax to your state. So unlike sales tax, where the duty to collect and remit is on the seller, with use tax the duty to self-report and remit is on you. In this case, though, since sales tax was charged (and will be remitted) by C24, you don't owe use tax.

Dsloan · Jul 25, 2023

gbesq
In a word, yes. Use tax is simply the equivalent of your state's sales tax on goods that you purchase from out of state (or out of the country) and on which the seller did not charge and remit sales tax to your state. So unlike sales tax, where the duty to collect and remit is on the seller, with use tax the duty to self-report and remit is on you. In this case, though, since sales tax was charged (and will be remitted) by C24, you don't owe use tax.

Thanks! That makes sense. I'll have to keep this in mind if I ever find a pristine Ranchero hiding at a flea market.

gatorcpa · Jul 25, 2023

Dsloan
But, is the state expecting me to document any purchases in which no tax was paid and kindly mail them a check for 6% of my own volition?

Yes. Most states have a line on their state income tax returns for use tax self-reporting.

Dsloan
Like, if I buy a watch at a flea market in NY and bring it home to my state, am I supposed to self-report?

Technically, yes. But you would get credit for any sales tax paid in NY state and NYC. This would likely be more than the MD state and local use tax, so you would not owe anything additional.

I have had clients who made large overseas purchases that were appropriately declared to US Customs get billed by Florida Dept. of Revenue for use tax later on. So it is clear that these agencies share information.
gatorcpa

Dsloan · Jul 25, 2023

gatorcpa
Yes.
I have had clients who made large overseas purchases that were appropriately declared to US Customs get billed by Florida for use tax later on, so it is clear that these agencies share information.
gatorcpa

Indeed - I paid import duties on the item, and the letter I got from MD included info from when it came through customs.

Dan S · Jul 25, 2023

I've heard that Californians deal with this regularly. I'm sure that every state is trying to figure out how to get their share. Remember when you didn't pay state sales tax on eBay or Amazon purchases?

I'm not normally one for conspiracies, but I was reading about the new FedNow platform for electronic payments, and I did wonder whether transfers would be shared with federal and state taxation authorities.

gatorcpa · Jul 25, 2023

Dan S
Remember when you didn't pay state sales tax on eBay or Amazon purchases?

Yes, but you were always supposed to report out of state purchases for use tax purposes, unless you live in a state without use tax or that has some type of exemption.This has never changed.

Dan S
I was reading about the new FedNow platform for electronic payments, and I did wonder whether transfers would be shared with federal and state taxation authorities.

I think the new law regarding Forms 1099-K being issued for amounts paid totaling over $600 will apply to this system. That means the states will have access to that information for income tax reporting. However, since there is no federal sales tax, I don’t think there will be reporting for sales/use tax purposes.

gatorcpa

gbesq · Jul 25, 2023

The other thing that has never changed is that no matter what new sources of revenue your local, state and federal taxing authorities discover, it’s never enough. Casino gambling revenue is the perfect example. States are absolutely raking in huge amounts of tax revenue from their share of casino slot machine revenue, but they’re still as broke as ever. ::facepalm1::

Dan S · Jul 25, 2023

gatorcpa
Yes, but you were always supposed to report out of state purchases for use tax purposes, unless you live in a state without use tax or that has some type of exemption.

That how it has always been.
gatorcpa

Agreed. And in practice, I have to assume that the amount of tax they actually collected skyrocketed when those platforms started collecting state tax directly. If I understand correctly, a company with a substantial presence in a given state is required to do this.

Now, apparently, some states have figured out a way to identify a broader class of sales and can invoice the purchaser for use tax. I have to think that other states will quickly follow suit.

gatorcpa · Jul 25, 2023

Dan S
Now, apparently, some states have figured out a way to identify a broader class of sales and can send bills to the purchaser.

This is nothing new. In Florida, this has been going on for at least 25 years. The irony here is that Customs is so rarely involved with shipments made through USPS (a quasi-governmental agency), that I have never heard of an automated use tax bill being issued to a recipient using the post office.

It is the reporting done by customs brokers working for common carriers that tend to be picked up by the states.
gatorcpa

lejaune · Jul 26, 2023

Every year, when filing for NJ state income tax, there is a question whether or not you have made any out-of-state purchases to be consumed/used in NJ. If you have, you are supposed to pay sales tax on those items.

In the good ole days, NY state police used to cruise around large outlet malls in NJ and Vermont to take down the NY license numbers and send letters to the car owners demanding use tax payment.

rendo · Jul 26, 2023

I'm curious to see how your state will respond. It doesn't make sense for you to pay a use tax if you already paid a sales tax. Was the sale price over $800? I read that in a different thread as a possible trigger for the use tax.

lejaune · Jul 26, 2023

rendo
I'm curious to see how your state will respond. It doesn't make sense for you to pay a use tax if you already paid a sales tax. Was the sale price over $800? I read that in a different thread as a possible trigger for the use tax.

In the case of New York, its neighboring states NJ and VT do not have sales tax on clothing and shoes (with exceptions of very expensive items). I don't know how many people actually capitulated by the letters and paid, but it was not a very successful program.

MarktheTime · Jul 26, 2023

Yep. Pennsylvania tagged me about the same percentage for its use tax on an expensive watch I imported from Germany last year (via Fedex…which was “kind” enough to charge the US customs duties directly to my credit card they have on file…and then to pass along the info to PA, I presume).
To add insult to injury, I paid the PA tax in full and promptly upon receiving the notice (which arrived a few months after the watch did)….only to learn a few weeks later that my payment was “delinquent“ by several months since I guess they deemed it “due” at the time of import, so I owed some interest as well. SMH.
At least I still love the watch!

Dsloan · Jul 26, 2023

MarktheTime
Yep. Pennsylvania tagged me about the same percentage for its use tax on an expensive watch I imported from Germany last year (via Fedex…which was “kind” enough to charge the US customs duties directly to my credit card they have on file…and then to pass along the info to PA, I presume).
To add insult to injury, I paid the PA tax in full and promptly upon receiving the notice (which arrived a few months after the watch did)….only to learn a few weeks later that my payment was “delinquent“ by several months since I guess they deemed it “due” at the time of import, so I owed some interest as well. SMH.
At least I still love the watch!

I'm still waiting to get a response, but the letter stated I would owe penalties for late payment.

That seems to be the MO with state taxes. Last year I got a notice that I had underpaid my state taxes 4 years ago, so I owed 4 years of penalties. I managed to get them to reduce the fees, but it was super fun to get slapped with penalties after it took them so long to catch the error. Not to mention, I'm still waiting on my 2021 and 2022 fed tax returns.

gatorcpa · Jul 26, 2023

rendo
It doesn't make sense for you to pay a use tax if you already paid a sales tax.

As I said above, you get credit for the sales tax you pay to another state.

If your state charges a higher use tax than the one to which you already paid sales tax, then you technically need to pay the difference to your home state.
gatorcpa

watch_my_six · Jul 26, 2023

In CA, the state contacted me after tax season since DHL reported an international/customs transaction to CA.

Use Tax?

Dsloan

mbp

Dsloan

mbp

gbesq

Dsloan

gatorcpa

Dsloan

Dan S

gatorcpa

gbesq

Dan S

gatorcpa

lejaune

rendo

lejaune

MarktheTime

Dsloan

gatorcpa

watch_my_six

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