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Do you have to pay use tax in California?

Anyone who follows the trends and topics in tax law, as we do here, has probably heard a great deal about online sales tax in recent months. With the growth of major online retailers like Amazon, some small businesses have a hard time staying competitive. This is exacerbated by laws that have not required entities like Amazon to collect sales tax on online purchases, often making online retailers a more affordable choice for consumers.

If you do a lot of online shopping you may feel like you've saved a great deal of money by not paying sales tax. However, California tax law does not simply ignore those purchases and accept tham as tax-free. "Use tax" is a tax that consumers are supposed to pay on such purchases when they file an annual tax return. However, some California taxpayers may not even realize that it exists, or may have forgotten to include it as part of a tax return.

When you make a purchase online and bring it into the state (or have it delivered here), you are supposed to pay a use tax. Technically, use tax should be determined based on how much you spent on online purchases but it isn’t exactly realistic to expect people to hold on to every receipt and credit card statement to determine how much they are. Instead, some states have created tables that allow taxpayers to calculate a safe harbor amount of use tax to pay based on their annual income.

For many, this will be an additional tax burden. However, for those who have calculated their use tax themselves in past years, the California look-up table may actually save them money. Purchases of items costing less than $1,000 may be taxed at a lower rate than the state’s sales tax.

If you have questions or concerns about your tax situation or annual return consider speaking with an experienced tax law attorney.

Source: Forbes, "The Tax You Probably Forgot to Report," Ashlea Ebeling, April 15, 2013

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