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Use Tax Due on Out-of-State Internet and Catalog Purchases

Department of Revenue stepping up tax education initiative to increase collections

November 15, 2000

BATON ROUGE-Catalog and Internet sales are subject to the state''s sales and use tax, says Revenue Secretary Cynthia Bridges. If a seller is located outside of the state and has no legal presence within the state, the Department cannot require them to collect the Louisiana sales tax on sales into the state. However, the customer is still liable for the tax.

"Making a purchase from a seller located outside of Louisiana, whether by phone, mail, or the Internet, does not exempt you from paying the state''s sales tax," Bridges says. If the seller does not collect the state''s sales tax, the customer must pay the equivalent "use" tax. "This applies to catalog and Internet purchases as well," she says.

The state''s use tax, which has been in effect since the inception of the sales tax, is only due if the sales tax was not collected. However, it is one of the state''s most under-reported and under-collected taxes. The annual revenue Louisiana''s state and local governments lose is not precisely ascertainable, but is clearly a growing number. A United States General Accounting Office study estimated this past June that Louisiana''s loss during calendar year 2000 will be between $77 million and $237 million. The GAO reports that the loss will grow much higher over the next three years unless enforcement and voluntary compliance increase.

"Louisiana residents can report and pay their use tax at any time during the year," Bridges says. A Consumer Use Tax Worksheet can be downloaded from the Department''s website at www.rev.state.la.us. The worksheet can be found under "Tax Forms," in the subcategory of "Sales Tax," Bridges says.

And soon, it will be easier than ever for taxpayers to meet their use tax obligation. Bridges says the individual income tax returns to be mailed in January 2001 will include a specific line on the front of the return to report use tax. "This simple one-line addition to the return eliminates the need to fill out and mail a separate worksheet form," Bridges points out. "The taxpayer simply computes a total price for all his purchases and multiplies by 8%. The property''s date of purchase, description, and individual purchase amount are not requested." She adds that an extensive media campaign will begin in January to raise taxpayer awareness about the new line on the state income tax return.

Bridges says her Department is stepping up its tax education initiative to inform taxpayers of their use tax responsibility. With the boom in catalog and Internet sales, many electronic shoppers are not aware that they must pay use tax on their purchases if the seller fails to collect the sales tax at the time of the sale. "Out-of-state merchants have an 8% advantage over Louisiana retailers, who must collect the sales tax," Bridges says. "We don''t think that''s fair."

She adds that out-of-state retailers that cannot be required to collect the state''s sales tax may voluntarily register with the Department and collect tax at the time of sale. Louisiana Revised Statute 47:302(K), enacted in 1994, allows dealers with no location in Louisiana that solicit sales through catalogs and the Internet, to collect 8% use tax on sales into the state. The 8% tax rate represents 4% state use tax plus 4% local taxes, which are distributed to local governments.

Currently, Louisiana participates in an information exchange program with 11 other Southeastern states to identify residents who have made large purchases without payment of the tax. Under this program, Louisiana shoppers who did not pay sales or use tax on out-of-state purchases are billed by the Department for the use tax owed, plus interest and penalties. On large items, the tax obligation could be substantial, Bridges says.