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Sales and use tax overview for online purchasers

It must happen, but it is hard to imagine that an online merchant would not want to do business in California. With more than 38 million people, the state offers immense opportunity to sellers of the entire spectrum of goods and services. The opportunity does not come without obligation, though. Each Internet seller not only needs a seller's permit, it must also collect sales and use taxes for items delivered to California addresses (unless the goods are tax-exempt).

According to the Board of Equalization, the difference between the sales and use taxes is this: Sales tax applies to the sale of merchandise. The BOE defines a sale as, "Any transfer of title or possession, of tangible personal property for consideration, regardless of when payment is received." The use tax applies to the "use, storage or other consumption" of merchandise within the state.

In-state and out-of-state sellers must pay sales tax to the state. It feels as if consumers pay the tax, but, in truth, the sellers are asking -- at their discretion -- that their customers reimburse them the money the sellers have paid to the state. If one of those sellers does not collect sales tax, the consumer must pay the use tax.

Broadly, the BOE says, the consumer's task is to determine if the Internet merchant charged California sales tax for the merchandise. If the seller did not, the consumer then calculates the tax due using the prevailing tax rate for the address where the goods will be used (for the most part, this is home). The consumer can pay the BOE immediately or save up all receipts and pay the total use tax bill with his or her income tax return.

If you are a consumer and this is news to you, you may want to consult with a tax attorney just to get the details of your own situation in hand. While the process itself does not look complicated, there may be subtleties that require further research. For example, shipping and delivery charges are usually not taxable, but there are exceptions.

Remember, too, that this is a tax, and there are consequences for not paying taxes. 

Source: California State Board of Equalization, "Publication 109, Internet Sales," March 9, 2014

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