What is Use Tax?

I read an article today about Amazon threatening to cut all ties with their affiliates if California passes the law to have Amazon collect sales tax on purchases made by California residents.

Amazon does not want to include sales taxes in their prices because they do not want to act as a tax collector for a state they do not reside in, which is probably bullshit. Amazon is able to profit in California by not including sales tax in their prices. When a customer compares an Amazon price sans sales tax with a local store that includes sales tax, they will most likely purchase from Amazon.

California’s state government is flat out broke. They need money from any avenue they can find. This tax loophole has been open for the past decade. With the number of consumers going online to make their purchases, revenue from sales taxes has been shrinking. To remedy this loss, California wants all out-of-state retailers who sell to residents in this state to collect the state’s sale tax. They targeted Amazon because it’s the biggest fish in the pond.

For the state to collect on sales tax from an out-of-state company, the company must have a physical presence in this state. Amazon does not have a retail store in California, I am not sure if they even have a distribution center here. But they do have affiliates–webmasters who drive traffic to Amazon to collect on commissions from customer purchases. These affiliates reside in California, so in a roundabout way, Amazon does have a physical presence in the state.

Amazon stance is to sever ties with all California affiliates, thus removing their physical presence in the state. In this manner, they will continue to sell their products to California residents without applying sales tax. They will have to retroactively pay for the sales tax incurred from past purchases which would amount to a couple hundred million. California will lose out on the extra income taxes from resident affiliates. And the affiliates will lose a source of income.

Who is to blame for all this? Everyone who buys products online and don’t pay the Use Tax at the end of the year. Random guy remarks, “You’re crazy! What is this Use Tax? I’ve never heard of it in my life! Stop making shit up!”

No, my friend, the Use Tax is all too real. The law has been in the books since 1935 but it referred mostly to catalogs at the time. In 2003, a line for use tax was added to the state income tax form. California requires residents to pay a tax on purchases of taxable products from out-of-state companies that do not collect sales tax. The Use Tax rate is the same as our sales tax.

So, if you saw and bought that sweet 3D TV deal for ~$2000 from Amazon, when tax day rolls around, you need to pay ~$200 in Use Tax to California. This also applies to those few who cross state lines to buy products from Oregon tax-free and bring them back to California. You know who you are. Don’t try to cheat the system.

And on that note, go buy something from Amazon through this link which has an affiliate id attached. The affiliate is not mine but a friend who needs funds to satisfy his otaku needs. Otakus Unite!

2 thoughts on “What is Use Tax?

  1. A) If California’s state government is “flat out broke,” then perhaps they can spend less. There’s no reason the solution automatically has to be “squeeze more money out of constituents.”

    B) Just because Use Tax is “all too real,” doesn’t mean it’s not BS. How does the fact that I’m enjoying a $2000 TV cost the government anything? It doesn’t – so why should I have to pay more money, just because I chose to spend the money I had (and thus helped out our national economy)? I already paid income tax on that money.

  2. A) I agree California should spend less rather than raise taxes to make up the difference.

    B) But, the Use Tax is a legitimate tax that exists to protect the businesses in California. Since Amazon does not collect sales tax, they have an unfair advantage over local retail stores in terms of setting their prices. Everyone is always up in arms over import tariffs, this is pretty much the same thing but at the state level.

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