State to online holiday shoppers: Don't forget use tax
Jan Talley doesn't have a list, but she assumes you've been naughty. She knows you probably have a computer, and that you've probably made online purchases, and that some of the companies you bought from probably didn't charge you sales tax. And ...
Jan Talley doesn't have a list, but she assumes you've been naughty.
She knows you probably have a computer, and that you've probably made online purchases, and that some of the companies you bought from probably didn't charge you sales tax.
And she knows that if you weren't charged sales tax, you were supposed to send the state what's known as "use tax."
Apparently, she's among the few with such knowledge. University of Tennessee researchers predict that the state and local governments in South Dakota will lose between $57 million and $89 million next year to unpaid e-commerce taxes.
Talley, the director of the Business Tax Division of the state Department of Revenue and Regulation, is encouraging shoppers to remit use taxes this holiday season on Internet purchases for which no sales tax is charged.
"A lot of people don't do it because they don't know about it," she said. "But it's like I always say: Anyone who has a computer in South Dakota probably owes use tax."
The state defines "use tax" as a tax owed on merchandise or services that are purchased to be used, stored or consumed in South Dakota, but for which no sales tax has been collected.
A use tax is owed, for example, when a South Dakota resident makes an online purchase from an out-of-state company that is not required to charge sales tax. Use taxes also may be owed on non-Internet transactions with catalog companies or out-ofstate dealers that deliver to the state.
South Dakota legislators adopted the use tax during the 1930s as a way to promote fairness in retailing. It was unfair to local merchants, they reasoned, when people shopped out-ofstate or via catalogs to escape sales taxes.
Talley said some South Dakota residents voluntarily pay use taxes; however, she admitted that many don't and said the department does not maintain statistics on the number of use tax filers or the amount of use taxes paid. Use taxes and sales taxes are lumped together in reports and will continue to be treated that way until the state installs a new computer system next year, Talley said.
Failure to pay use taxes is a misdemeanor crime punishable by a maximum imprisonment of one year and a fine of up to $2,000, but Talley said the state's policy is to avoid prosecution. Instead, letters are written to known offenders. If that doesn't work, an audit may be initiated.
The department makes some effort to uncover use-tax crimes, but Talley said the state lacks the resources and manpower to monitor every transaction for which a use tax is owed. The department's ultimate goal, shared by officials in other states, is to convince Congress to require online retailers to collect sales taxes on all transactions.
Until that happens, state officials hope to educate more people of their obligation to pay use taxes. Talley tells consumers to keep a record of use taxes owed throughout the year. Then, at the end of the year, a form can be obtained from the Department of Revenue and Regulation and remitted with a check.
Use taxes are calculated in the same manner as sales taxes. The state rate of 4 percent is owed on all purchases, plus any applicable municipal rates. In Mitchell, that additional rate is 2 percent.
Talley said us taxes may seem insignificant to an individual consumer, but they can add up to millions of dollars for state and local government coffers.
"That's big," Talley said, "especially for a small state where sales and use taxes are a main source of revenue."