On March 12, 2014, the US House Judiciary Committee held a hearing to explore alternative solutions regarding Internet Sales Tax. I can appreciate these discussions as I love talking and thinking about taxes more than the typical person. When I think about how long we have been talking about taxing internet transactions, it draws me back to the real issue we are trying to solve. The real issue is that consumers (you and me) are not voluntarily remitting the use tax that is due when we purchase items from out-of-state sellers. These laws are already on the books and we owe the tax each time we don’t pay sales tax to the vendor. Businesses are also big consumers, but they run the risk of audit much more than individual taxpayers, so many of them have figured out that they better remit use tax or face audit assessments with penalties and interest. The threat of audit can be a good motivator for voluntary compliance.
It is likely that you already run the risk of an audit but it tends to be on larger items like vehicles, mobile homes, boats, aircraft, or maybe even expensive furniture/art purchases as the states do have a keen interest in looking after these items. What I am really wondering is what would it take for you to report use tax on your internet/mail order/phone purchases? Thinking creatively and not so far out of the box, I am wondering if the focus should be reward based rather than punishment based (which usually works better with my kids until they have more disposable income than I do and I shift to a punishment system where they must provide me lunch money if they don’t do what I ask of them). Portugal and China have implemented reward based systems where compliant taxpayers with a valid receipt are entered into a lottery for luxury cars or cash. It certainly makes it more interesting if you pay your taxes and have a chance at winning a new car or taking the cash. I’m pretty sure this may be a little too alternative for the Judiciary Committee, but it makes me think about my use tax obligation much more. What would motivate you to pay use tax?