Arizonans who buy items on line to escape the state sales tax will now be asked each year to pay it — or be forced to lie about it.
A new law that takes effect later this month will require Arizonans to spell out each year, on their state income tax forms, exactly how much they spent on items from mail order, phone or online retailers who did not charge them tax. They then will be required to pay 6.6 percent of that figure, the current state sales tax, when they file their returns the following spring.
On a $50 audio player or piece of software, that computes out to $3.30.
Strictly speaking, Arizonans already are required to pay what are known as “use taxes’’ on items they bought elsewhere.
But state Rep. Jack Harper, R-Surprise, said the mandate is all but invisible to individuals. In fact, he said, they would be hard pressed to find the existing applicable form from the state Department of Revenue to even report it.
Potentially more significant, Harper said the new law will make the obligation obvious.
“If somebody doesn’t know they’re supposed to report use tax, then they’re not cheating on their taxes,’’ Harper said. “If it’s on a line on their (income) taxes, then they have to write that they don’t owe any use tax and think about it.’’
How much the state might collect is unclear.
An estimate prepared on a different version of the law put the additional revenues at more than $520,000 a year.
But that was based on the idea that individuals would not have to report — and pay — the levy unless they owed at least $50 a year. That translated to an exemption on the first $758 of out-of-state purchases.
The new law, however, has no such exemption, potentially pushing the collection closer to $1 million.
That compares with the more than $270 million already collected in use taxes now, largely from businesses buying supplies and equipment from other states.
Of course, that projection of additional cash is premised on voluntary compliance.
Ernest Powell, a manager in the tax research and analysis section of the Department of Revenue, said he cannot comment on any policies about how and when his agency audits individual taxpayers. And Rep. Matt Heinz, D-Tucson, who first came up with the idea, said enforcement will be an issue.
“People can certainly just put a zero there (on the tax form) and say you have no liability, whether it’s true or not’’ he said. “But I believe that there are a great deal of honest people in the state,’’ Heinz continued, people who would be willing to pay the tax once they’re made aware they already owe it.
Anyway, he said, this idea is a far better way of generating needed revenues than actually imposing some kind of new tax or assessment.
“We should enforce the ones we have on the books,’’ he said.
Heinz also said trying to collect the tax is only fair to local businesses who are competing with out-of-state retailers who can market their items on the basis that they do not collect Arizona’s sales tax.
“More and more of our economy goes to online or internet-based exchanges,’’ he said, meaning that more and more of the state’s sales tax base will disappear unless some there is some reliable method of taxing those transactions. “I don’t know why those exchanges should be exempt.’’
There are indications that even a beefed-up voluntary system like this will have an effect.
Arizona accountant and attorney Bob Kamman said at least 23 states already have a similar requirement.
“Collections, while far from spectacular, are significant,’’ he said.
In Michigan, he said, voluntary use tax payments in 1998 were $240,000. The following year, after the income tax reporting requirement went into effect, it skyrocketed to $2.9 million.
Looking at the issue another way, Kamman said only about 200 individuals in Massachusetts reported use tax in 2001, before there was a line on the income tax form. In 2002, the first year of reporting, that shot up to more than 11,000.
Still, Kamman said he doubts the Department of Revenue will be out looking for cheaters.
“The state simply does not have the resources to audit the personal spending habits of every Arizonan,’’ he said. “The amount of tax collected will not justify the effort.’’
And Kamman said that, in his experience, nearly all individual income tax audits done by the state involve picking up on adjustments made to tax returns by the Internal Revenue Service. “And the federal auditors don’t look into whether use tax was paid,’’ he said.
Anyway, Kamman said, even if the state does try to find those who are shorting the state, spotting them could prove nearly impossible.
“Auditors might ask to see credit card records,’’ he said. “But those won’t show whether sales tax was paid.’’