Taxes

Volnavy · Jan 7, 2005

I asked this question because it seems like an advantage to buy on the internet. I know if I buy a computer on the net, say from California, I am not charged tax. However, if I buy a Dell, they have a plant in Tennessee (my state) and I have to pay tax.

I've never paid tax on an ebay purchase, however many sellers say that if you are in their state you must pay their state sales tax.

I looked at the ebay policy and they politely stay out of it. They say you need to follow the law. Of course they don't state what the law is.

Being a professor, I should know how to research a topic, but I figured common practice sometime means more than law. The following is the most recent article I could find on the issue (published yesterday):

http://www.entrepreneur.com/article/0,4621,307444,00.html

Here are some important paragraphs:
Online companies with a physical presence, or nexus, in a state are required to collect and report taxes on sales made to customers living within that same state. For example, if your online business is based in California, you must collect and report sales tax derived from fellow Californians making purchases on your site.

...

And nobody knows how long that process could take, not even the states themselves. Many states are asking their citizens to take charge of the situation and voluntarily pay sales tax for purchases made online. It's sort of a "good citizen honor system" that I doubt few actual good citizens will willingly take part in.

I think I can buy a tractor on ebay, pay for it with paypal, pick it up, and never pay tax. I also think it is not only legal, but correct.

Wes

frank_f15 · Jan 7, 2005

( Online companies with a physical presence, or nexus, in a state are required to collect and report taxes on sales made to customers living within that same state )
that is just the way i understand it, but to be truthful , if i buy something online and they do not add tax, i would not be inclined to volunteer the tax at tax time. This is all hypothetical of course /forums/images/graemlins/grin.gif

DUMBDOG · Jan 7, 2005

You do not state if it is a used or a new tractor that you are looking at. If it is used, it may me a mute point, depending upon the laws of your state.

You state that common practice sometimes means more than the law, a prime defense if you are the speeder pulled out of a line of speeders on the highway.

Your state does have a form to report the purchase and pay sales tax, after looking at the form, it really does look like it is on the honor system.

Paying for the purchase with Paypal will leave just as large of audit trail to follow as paying with a check. Most dealers will not accept paypal for a larger purchase as they have to pay the discount for the use of it, if they do allow it, there is sometimes a fee becasue of the dollars involved.

A lot of states belong to a multi state audit group, mainly for corportate income taxes, but it may include other taxes as well, I do not know if your state is among them.

There are a lot of audit trails that you will leave open in a purchase such as this. Among them are the warranty registration if new, dealer records, bills of lading for shipping and your insurance records.

You state that you are a professor, does mean that you teach at a state sponsored instituition? If so, where does a large portion of the funding for your postion come? My guess would be state income and sales tax.

Bear in mind that I am not trying to judge what you are comtemplating but merely pointing out some of the pitfalls of what you are planning.

Tom4310 · Jan 7, 2005

There is no tax on internet sales as long as you purchase out of your state. There is a big movement to get this changed but as of now, that is the law. In Oregon, we have no registration or tracking of tractors. Kind of surprised me but a simple bill of sale is all that is needed for private purchases. When the local JD dealer sells a new tractor, they fill out paperwork but it is serial numbers and warranty info for their files. If you are concerned, I would email the company and discuss this with them. Find out what forms etc they file and as long as you pay cash, you shouldn't have a problem. I did read a forum about a member who finianced a tractor and had to pay back sales tax on his tractor. We all pay enough taxes and when there is a loop-hole, jump through it. Not trying to push anybody off their high horses...IMHO of course.

DUMBDOG · Jan 7, 2005

Yes, you are correct there is no sales tax on internet sales providing the purchaser is out of state. However most states have a use tax which the tractor would be subject to once it is brought into the state. A use tax is quite similiar to the sales tax but is usually put on items not subject to the sales tax.

Tom4310 · Jan 7, 2005

Yes, most states do have use taxes. Below is copied from the Tenn tax site. There is no way on this earth that I would voluntarily send them the use tax on items I bought over the internet much less a $30,000 tractor. My opinion but that is one of the reasons I live in sales-tax free Oregon.

 Contrary to popular opinion, online and catalog sales are subject to use tax. This tax has been on the law books since 1947 and is the counterpart to the sales tax. When someone buys merchandise online or through a catalog and the seller of the merchandise does not collect sales tax, the consumer who bought the item has a legal obligation to file and pay use tax on the merchandise. The use tax is the same rate as the sales tax.

And, purchasing merchandise outside of Tennessee, whether done physically or electronically, will not exempt someone from paying use tax if an equal amount of sales tax was not paid to another state at the time of purchase. Click here to learn more about how states share information about consumers' purchases.

So, how do you file and pay use tax? It’s easy. Click here to download the return. Then follow the instructions, and complete and return with use tax payment to the department.

DUMBDOG · Jan 8, 2005

What you have to realize that the majority of our tax system is based on the honor system. Income tax is partly based upon this, the reason that we have all of the 1099's, W-2's, all of the other forms and the occasional audit is due to noncompliance, people not reporting what is due, thinking let the next guy pay for it. Sales tax is collected at the source of the sale for the very same reason. People will avoid the tax like the plague if they can help it. The only tax that is collected fairly is the real estate tax as in you own, you pay the tax.

I do not know where you think that the money comes from that pays for the services that we receive, but without the income, sales and real estate tax we would not have our school systems, police and fire departments along with a host of other services. Granted there is waste in government, but what group does not have waste?

Sorry, I just feel that everyone should pay their fair share.

I will now step down from my soapbox. /forums/images/graemlins/crazy.gif

Volnavy · Jan 8, 2005

Dumbdog,

I am not trying to avoid the law. I just have not found anything yet that leads me to believe I am required to pay taxes when buying something over the internet. The use of paypal was not to prevent an audit trail, just to pay for the goods.

Volnavy · Jan 8, 2005

You are correct. When an item is purchased untaxed and brought back into Tennessee a use tax should be filed and payed.

The tennessee.gov web site states:

Tennessee, like other states that impose a sales tax, also taxes the use of property that is brought into the state untaxed when purchased. This "use" tax was enacted in 1947, the same year as the sales tax, to complement the sales tax by taxing merchandise purchased from out-of-state sources that do not collect the state’s sales tax. The use tax is designed to raise revenue and to protect local merchants, who must collect the sales tax, from unfair competition from out-of-state sellers who do not collect Tennessee’s sales tax.

DUMBDOG · Jan 8, 2005

Now that I am off of my soapbox and we know what the law says, let us now see what we can get away with. /forums/images/graemlins/grin.gif

ksmmoto · Jan 8, 2005

Sales tax, Use Tax and Internet Taxes seemed to get very mixed up. I will try to explain each as I see it.

Sales Tax: Must be collected from buyer by the seller on in-state purchases and out of state purchases when seller has a physical presense in that state. This applies to sale by ANY means, phone, mail, fax OR Internet.

Use Tax: Any out of state purchase where Sales Tax was NOT collected. Use Tax must be paid by the buyer directly to the state. This applies to sale by ANY means, phone, mail, fax OR Internet.

Internet Taxes: This is what people get mixed up on. When you hear or read about Internet Taxes, they are talking about taxing your ISP connection, NOT Sale or Use taxes which are due NO MATTER what. All other forms of communication are taxed - mail, phone and fax.

To make it MORE complicated, Michiagn has a exemption from Sale or Use taxes for agriculture use. This is just done by the buyer asking for it and signing a form filled out by the seller. Not sure how picky the state is when audited and hope to never find out!

Our tax system is WAY to complicated, just a mess really. I don't know if it will truly be fixed ever. But we DO need some taxes, I have been to Haiti and the infrastructure there is a huge problem, you would have to see to believe.

ksmmoto

MikePA · Jan 8, 2005

Internet Taxes: This is what people get mixed up on. When you hear or read about Internet Taxes, they are talking about taxing your ISP connection, NOT Sale or Use taxes which are due NO MATTER what. All other forms of communication are taxed - mail, phone and fax. 
No offense, but when I hear 'Internet Taxes' the context is almost always the debate about how to collect sales tax for purchases made over the Internet.

sneaky_pete · Jan 8, 2005

( Michiagn has a exemption from Sale or Use taxes for agriculture use. This is just done by the buyer asking for it and signing a form filled out by the seller. Not sure how picky the state is when audited and hope to never find out!)

Ditto for Texas, on both counts. In addition, we have no state income tax or tax return either. /forums/images/graemlins/cool.gif

rozett · Jan 8, 2005

There is a project that almost all states (and DC) are participating in called the Streamlined Sales Tax Project . As they state it "The Streamlined Sales Tax Project will develop measures to design, test and implement a sales and use tax system that radically simplifies sales and use taxes."

While I would acknowledge that the differences in tax rates, what goods/services are exempt, etc makes it very difficult for businesses to collect sales tax on all purchases, their stated objective is just plain whooey!! What they are really about is rubbing each others backs to insure that each state collects 100% of all the sales taxes that they are 'entitled to' (by law). All these states are frantically groping for more revenue. They want to close all the loopholes that permit normal folks like us from 'getting away with' not paying sales tax.

You can find out more at their web site /forums/images/graemlins/mad.gif

jfdlaw · Jan 8, 2005

Guys, we went through all this in July. I think this is the thread:
Sales Tax?

If your state requires a sales tax (if the local dealer would have charged you tax) you are required to pay it yourself if your dealer does not collect it.

Another way to put this: The state requires the consumer to pay a sales tax (or use tax). To help collect the tax it puts a burden on the dealers over which it has control, to collect the tax from the consumer. The fact that your dealer is not required to collect the tax for your state does not relieve you of your burden to pay it. There are two seperate obligations. Consumer has to pay the tax. Dealer has to collect it.

Think of income tax. Its the individual's responsibility to pay their income tax. To help collect the tax the government requires employers to collect the tax and send it to the state (withholdings). If you are self employed, and don't have an employer withholding the tax does that mean you don't have to pay income tax? No, you have to send it in on your own. If you don't they might not find out, but if they do, you are in trouble.

Sales tax is very similar. The Vendor is just a collector. The obligation to pay is on the consumer.

The state may not catch you if you don't pay it. But that is a gamble. And states are wise to this and are auditing sellers, particularly internet sellers, to find people who fail to pay.

Stick with a local dealer, who is going to support you down the road. Use the prices from the out of state guys to get the best deal, but buy local and pay the tax. It's not worth the risk.

Edit: Another thought, a dealer that tells you that you don't have to pay tax just because he is in another state is either misinformed or lying to you. If they are misinformed or lying about the tax, what else are the misinformed or lying about. Do you really want to do business with them?

I want to clarify the thing I said at the beginning. "If your state requires a sales tax (if the local dealer would have charged you tax)" Obviously you don't have to pay if your state does not require tax on your purchase (like if you have an agricultural exemption, etc).

Henro · Jan 8, 2005

If I made the rules, sales tax would be charged at the point of sale, regardless of where the purchaser was physically. Things would average out state to state...Deadbeats like me who will avoid paying "use tax" could not avoid it anymore... /forums/images/graemlins/smile.gif

Then again, if I made the rules there would be no sales tax to begin with, sales tax being one of the most unfair taxes...my tax system would be based on income...not spending.

Sales tax hurts the little guy who spends all his income pay check to pay check. Not those who have more money than they need. /forums/images/graemlins/frown.gif

If I bought a tractor "tax free" from another state you can be sure I would not be offering to pay local tax on it until I heard the knock on the door asking for it. I am willing to pay my fair share, but not willing to subsidize a system that makes it possible for others not to pay when they make the same purchase.

AndyM · Jan 8, 2005

If I made the rules, sales tax would be charged at the point of sale, regardless of where the purchaser was physically. 

I've never understood the double-standard in Ohio on sales tax rates...

On most items purchased in Ohio, you are charged the sales tax rate in the county where the purchase is made. However, automobile purchasers are charged the sales tax rate for the county where they live, regardless of the county where they buy the car.

I know exactly why they do this, but it seems to me an unfair double standard for the consumer. /forums/images/graemlins/frown.gif

MadReferee · Jan 8, 2005

( If I bought a tractor "tax free" from another state you can be sure I would not be offering to pay local tax on it until I heard the knock on the door asking for it.)

Here, here. It's nice to hear someone speak their mind that doesn't follow the current political correctness goody two shoes attitude of most of the recent TBN posters. Screw the government, let them come after it if they want it. I wonder how many of the posters actually practice what they preach.

There. Now I have vented.

But I wil confess that I don't have the tax problem living in tax free New Hampshire, but I still subscribe to Henro's attitude.

Paddy · Jan 9, 2005

I guess my first question would be,,,what's the penalty? If you go through a method where you are clearly trying to hide, you are a criminal! If you just don't pay and they call you on it,

Buyer; "I understood you don't pay on out of state sales".

Tax man: "Sorry your wrong pal, pay up with 10% late fee"

I would go for the 10% late fee. But I can tell you, you try to buy trough a biz you have and provide a tax ID number, that's quickly looking like tax fraud. Same case for Ag or forest, if your not zoned that way you could be in the same boat. I suppose you could get your land rezoned but, that makes a future sale of your land sticky.

jfdlaw · Jan 9, 2005

What is the Penalty? Good question. If I get a chance I'll try to check the NY regs, but off the top of my head I would say:

1. New York usually charges interest on any tax you fail to pay on time. I think it would either be 18% per year, or 1.5% per month from your date of purchase until the time you pay,
2. a penalty, figure at least 10%. I've seen NYS Sales tax sometimes start out much higher and let the taxpayer try to negotiate it down.
3. Its also a criminal act, but I doubt they would bring criminal charges for this. Of course sometimes they like to make an example to scare other people into compliance.