I came across this article discussing the topic of online sales taxes. Local store owners are upset that many online retailers do not collect state sales taxes. As stated by one owner in the article, “I’ve been at a 5.1% disadvantage for years.”
This issue is complex on many levels, and I’m not going to get into an economic/political discussion of the merits. I did find it interesting that the article tied into an issue that comes up over and over again when I interview my clients prior to preparing their income tax returns. When I ask the client whether they made online/catalog/mail order purchases and did not pay state sales tax on those purchases, the response is always some variation of “What?” or “How would I know that?” or “Why does that matter?”.
The Wisconsin Department of Revenue has made a concerted effort to encourage taxpayers to self report, and pay in, any (see line 36, and page 28 of Form 1 instructions) state sales tax they avoided paying by shopping online. This was done by clarifying the form through adding the words “Internet” and “mail order”, as well as requiring the taxpayer to check an additional box, certifiying that no sales tax is due.
As you can imagine, enforcement is difficult without any mechanism to force the retailers to report. However, this is no different than many other forms of income that aren’t directly reported to the DOR or the IRS. It still needs to be reported.
My advice to clients is to look through their emails/receipts of purchases and do the best they can to piece together any sales tax not paid. Going forward, I suggest that clients keep track of these purchases just like they would anything else for your tax preparation. Failure to pay the sales tax due on online/mail order/catalog purchases will result in interest and penalties due.
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