In a recent Alert, we wrote about Indiana’s Department of Revenue reminder to consumers that online purchases are subject to sales and use taxes that should be reported on state tax returns. Other states, like Michigan, Idaho and Alabama are doing the same.
The Michigan Department of Treasury (DOT) prompts shoppers to keep receipts and report use tax on the Michigan 1040 tax return. The DOT confirms that purchases made online are not tax-free during holiday season, or at any other time of year.
In deciphering the tax, the DOT points out the following:
Michigan’s 6 percent Use Tax generally applies to transactions in which the retailer does not collect sales tax. This happens most frequently when an individual makes a purchase from online retailers, through mail-order outlets, or television shopping networks that do not have physical locations in Michigan. When out-of-state vendors do not collect sales tax on purchases, under Michigan law, the purchaser is responsible for reporting and paying the use tax.
Purchases subject to Michigan’s use tax include appliances, books, clothing, computers, DVDs/CDs, electronics, furniture, pre-written computer software, and tobacco products.
Likewise, the Idaho State Tax Commission (Commission) issued a news release (release) informing consumers that they may owe use tax to the state if the seller doesn’t charge them sales tax. The Commission explained that “[w]hen shoppers buy goods on the Internet, by telephone, or from a mail-order catalog, sellers won’t charge sales tax if they’re not Idaho retailers. In that case, the shoppers owe use tax if the goods are used, given away, stored, or consumed in Idaho. The shoppers are responsible for paying the tax directly to the Tax Commission.”
Idaho’s use tax rate is the same as the sales tax rate, 6 percent.
The release offers the perspective of Randy Tilley, the Tax Commission’s Audit Division Administrator. He justifies the tax as “an important tool that helps Idaho retailers remain competitive with out-of-state sellers that do not charge tax.” The funds help pay for state and local services, ensuring “that all consumers in the state contribute fairly to the funding of these services, whether they choose to make purchases in Idaho, online, or outside the state.”
The Alabama Department of Revenue reminds its citizens to ring up the use tax on their online purchases this holiday season if the retailer does not do so. Not only does the 4 percent state use tax on out-of-state purchases apply when the seller does not collect it, local sales and taxes apply in cities and counties that levy one.
Alabama earmarks its sales and use taxes primarily for its Education Trust Fund.