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N.Y. has new tax surprise on sales

By GLENN BLAIN

THE JOURNAL NEWS

(Original publication: February 1, 2004)

If you did a lot of shopping over the Internet or bought goods outside of New York state during the past year, be prepared to pay more in state taxes when you file your return.

Thanks to the 2003-04 budget adopted by the state Legislature, New Yorkers must now declare all purchases made during the year that were not taxed by the state. The list includes online purchases, mail-order buys and goods bought outside of New York.

"If you go to Florida and you buy a T-shirt and you bring it back to New York, as a New York state resident, you are supposed to pay New York state tax on it because you use it in New York, but you get a credit for the Florida tax you paid," said Joseph DiBenedetto, an accounting professor at Pace University and an accountant with Steinfink, Napoleon & DiBenedetto in Elmsford. "This is ridiculous, it really is."

The state has done practically nothing to publicize the move. But there, on line 56 of the New York state tax form, is an entry for taxes on out-of-state goods.

Because most people have only just begun to compute their taxes for the year, the new line item has yet to generate much feedback. However, accountants recently said they are preparing for a blitz of questions and complaints once clients realize what's now required.

"This is a tax that people are going to have to pay that they have never really paid before," said Frank A. Pellegrino, 54, a partner in Pellegrino and Sherwin LLP in Hawthorne. "We haven't heard the complaints yet, but I am sure we will. It is a matter of when, not if."

Technically, New Yorkers have long been responsible for giving the state any sales or use tax that was not computed at the time they bought an item. Nobody seemed to take notice, however, until the advent of e-commerce and lawmakers realized that millions, perhaps billions, of dollars in possible tax revenue was being lost each year.

So with the state in an enormous budget crisis, the Legislature last year saw a chance to generate much-needed revenue.

"These are taxes that should be paid," said state Sen. Nicholas Spano, R-Yonkers. "They are just, right now, uncollected."

The state's 2003-04 budget, which was put in place by the Legislature after overriding the vetoes of Gov. George Pataki, created the new line item on the tax form. The form and accompanying booklet give New Yorkers multiple options to compute the amount:

• Declare no purchases of non-taxed items and list zero as the amount;

• Itemize purchased goods and compute the tax owed using the instructions given; or

• Estimate the amount using an accompanying chart that is based on adjusted gross income.

Under the income chart, a person who earned between $50,001 and $75,000 in gross income would pay $34 in estimated sales tax. For a person who earned $75,001 to $100,000, the amount is $43.

"I think it is going to be a problem for both the people who are filing returns and the professional preparers," said DiBenedetto, who is sending a memo to his staff to make sure that they inform their clients about the new requirement.

"If you answer that you owe no tax and you do owe tax, you have effectively perjured yourself."

Spano said lawmakers realized that the new requirement could inconvenience tax filers, but they hope that it will eventually prompt the federal government to adopt a national system for collecting sales taxes on the Internet and other out-of-state purchases.

The Legislature's budget estimated a $25 million increase in revenue during the current fiscal year because of the new requirement. The fiscal year ends April 1.

Pataki administration officials, however, are less optimistic, saying they are not counting on any added revenue from the change. They believe many people will ignore the new line item and any money that does come in, will do so after the fiscal year ends.

They also made it clear that the Legislature enacted this change despite Pataki's vetoes.

"We are getting calls that say 'Where did this come from?' or 'Why are you doing this?' " said Michael Bucci, a spokesman for the state Department of Taxation and Finance. "The bottom line is, we were forced by law to do this."
 

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I'm no lawyer, but I think that the Federal Law that prohibits states from taxing out-of-state internet sales protects those types of purchases from the above referenced tax changes. That law was enacted specifically to prevent what is being done here. Fedaral law prevails. This doesn't need to spur the Feds into any kind of action, except chuckling.
 

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Actually the ban for internet tax sales prohibition lapsed and was never renewed in November. But I can't remember if it was online access tax, or general sales tax.


Any one?


One word: Doh!


If you want to talk a ripper: Maryland taxes you on your tax refund from the previous years return. Talk about double taxation. So basically you get penalized for letting the government take too much of your money, and not enough! I wonder how many people actually hit it right on the head tax wise? Maybe 1%?


Oh, and they raised the tax on property significantly. I'm going to be paying 50% more in land tax over the next 3 years.
 

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North Carolina has done this Internet-sales tax for the last couple of years. They actually found a really old law already on the books -- I think it was in the category of a "use" tax -- that allowed them to circumvent the ban on taxes on Internet commerce. There was definitely some controversy when it was announced, but they were able to counter all the challenges. (I'm not sure if any formal legal challenges were made, though.) Last year's version was pretty similar to what's listed above for NY, so it may have served as a model.
 

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Looks like I perjured myself...again, and every two weeks when I go to the Rez and buy gas and cig's tax free.


This has been law in NYS for awhile as others have mentioned. NY Govenor Pataki fought to keep it off the NYS returns but got the thumbs down.
 

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Same thing here - the "Use" tax has been on the books for a while. Normally consumers do not ever own up - we have whole shopping malls placed after interstate bridge crossings to avoid the tax. Think the mall would complain if they had to start enforcing the other states tax code! But if your business ever gets audited by the state and you do not declare "Use" tax for business items bought not for resale. Ouch!
 

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The tax itself has always been the law in NY. The problem with adding it the tax return (I looked at the form, you have to fill in a number) is that by signing the return, if you don't declare the items, you are committing perjury, which could have dire consequences. Also note that the safe harbour chart only covers items of less than $1000. So if you buy a plasma over the net, you need to declare it and pay tax. Ouch.
 

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Gee, higher/more/new taxes. The poplulation and job exodus continues from NYS. Can't understand why everyone's leaving?!


Almost laughable. This idea ranks down there with taxing email.


Oh wait! I'm sure they're doing this for our own good, right?
 

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I have heard CA has a law like that. I don't know how many people are even aware of them. Well the government wants their money, so they'll get it somehow!
 

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Add me to the list of people leaving



Quote:
Originally posted by frostlich
Gee, higher/more/new taxes. The poplulation and job exodus continues from NYS. Can't understand why everyone's leaving?!


Almost laughable. This idea ranks down there with taxing email.


Oh wait! I'm sure they're doing this for our own good, right?
 

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Most states have had a “Use Tax†law on the books for some time. Just because you are not required to pay sales tax to the seller you are still responsible for use tax and are breaking the law if you don’t. Most people aren’t aware that they are responsible for the use tax.


Buying from the Internet does not exempt you from the “Use Taxâ€. It's just that it is almost impossible for a state to collect on those, unless reported by an individual. Most companies pay the use tax, because they want to write off the purchase on their taxes.
 

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Quote:
Originally posted by DigitalGriffin



If you want to talk a ripper: Maryland taxes you on your tax refund from the previous years return. Talk about double taxation. So basically you get penalized for letting the government take too much of your money, and not enough! I wonder how many people actually hit it right on the head tax wise? Maybe 1%?


Oh, and they raised the tax on property significantly. I'm going to be paying 50% more in land tax over the next 3 years.
That is the funniest I have heard. That is the most absurd tax law ever.


The problem with the NY tax law is the purjury potential and the effective thumb NY can put on someone. Unless you take the Safe Harbor route every year, you are probably lying wether you know it or not by coming up with any other number. How the hell are you expected to keep track of all of your internet spending each year and what you were taxed and what you were not?


Everything you do in NY costs you $20+. Now your taxes just cost you about $40 more. They will probably charge an Exodus tax for anyone who decides to leave.


One nice thing about Texas is there is no state income tax and it would take 2/3 rds vote from congress to ever create one. Property taxes in Texas? Well, that is a different matter.


I think it's about time for another Boston Tea Party.


-Mr. Wigggles
 

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Quote:
Originally posted by DigitalGriffin
If you want to talk a ripper: Maryland taxes you on your tax refund from the previous years return. Talk about double taxation. So basically you get penalized for letting the government take too much of your money, and not enough! I wonder how many people actually hit it right on the head tax wise? Maybe 1%?
Just to be clear, is there a deduction for the taxes that were taken out each year? If there was then this law would make sense to me as it would basically keep people from paying as much as they could to get a high deduction and in the long run evens things out to be the closest to the actual taxes you paid, not just what you prepaid.


Here is an example:


Taxpayer #1: 2002: Prepays $6000, gets $1000 refund. Gets $6000 deduction for 2002, but $1000 added for 2003.

Taxpayer #2: 2002: Prepays $5000, no refund. Gets $5000 deduction for 2002, but nothing for 2003.

Taxpayer #3: 2002: Prepays $4000, pays another $1000 with their tax return. Gets $4000 deduction for 2002 and another $1000 for 2003.


If this isn't how it works, then yes it would seem ridiculous. However, if this is how it works I think it would be ridiculous to give taxpayer #1 $6000 in deductions and taxpayer #3 only $4000 in deductions just because they paid the same taxes in different ways.


--Darin
 

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You have to pay "Use Tax" here in Colorado too. My Accountant makes me pay it on all my business internet purchases. Luckily, my biz is in an unincorporated area and I only have to pay 3.8%. But he has told me of the state coming down on local business for not paying it. You have to file a Use Tax form and send in a check, when the total due hits a required amount. Really sucks and its only going to get worse!
 

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Jason is correct. California has a new line item on their state tax returns that is supposed to deal with the USE tax in relation to buying items outside California. In reality, this is nothing new. It has always been state law that when your purchase out of state goods that you are supposed to declare it to the state and pay the appropriate tax. Out of state companies arent required to charge sales tax, but it has always been the responsibility of the buyer to report it. Of course as you can image, maybe 5 people ever did that. The new law is supposed to help inforce this but in my opinion instead of 5 people reporting this, they will now have 6 reporting it.


The sales tax people (had a convo with them) realize that individuals will never report it and they have no expectations of it. They are going after the outside sate companies to have them report this. They have an easier time catching business who buy out of state goods because when they audit companies on their business property tax forms, they always check to see the invoices and thats how they catch companies that dont pay and the companies that sell this stuff
 

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Darin


You get a federal deduction for the state taxes the year paid and income for a state refund the year received. For california, since state taxes are not deductible therefore refunds are not taxable.


By the way, for federal purposes, state refunds are only taxable if you itemized and possibly if you got no benefit from you state taxes due to being in Alternative Minimum tax


The use tax shouldnt be deductible on the federal tax as sales tax isnt deductible unless its connected to a business that has depreciable items.


Oh well
 

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Quote:
Originally posted by darinp2
Just to be clear, is there a deduction for the taxes that were taken out each year? If there was then this law would make sense to me as it would basically keep people from paying as much as they could to get a high deduction and in the long run evens things out to be the closest to the actual taxes you paid, not just what you prepaid.


Here is an example:


Taxpayer #1: 2002: Prepays $6000, gets $1000 refund. Gets $6000 deduction for 2002, but $1000 added for 2003.

Taxpayer #2: 2002: Prepays $5000, no refund. Gets $5000 deduction for 2002, but nothing for 2003.

Taxpayer #3: 2002: Prepays $4000, pays another $1000 with their tax return. Gets $4000 deduction for 2002 and another $1000 for 2003.


If this isn't how it works, then yes it would seem ridiculous. However, if this is how it works I think it would be ridiculous to give taxpayer #1 $6000 in deductions and taxpayer #3 only $4000 in deductions just because they paid the same taxes in different ways.


--Darin


Darin,


You are right. VA has the same law and it relates to the deduction you took in the prior year.


Bomber
 

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A couple of years ago, the Illinois Department of Revenue got sales information from a number of the big New York photographic dealers (they probably sued to get it) and I got a use tax bill, which I paid, since I did owe it under Illinois law. That only happened once, which suggests that the cost of the lawsuit to get the information didn't produce enough revenue to justify doing it again or NY changed its laws to prohibit disclosure of sales information.


I suspect one of these days the states are going to persuade Congress to allow them to tax cross-border sales in some fashion.


MIKE
 

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I think this calls for a song :)


Let me tell you how it will be

There's one for you, nin'teen for me


Cause I'm the tax man

Yea I'm the tax man


Should five percent appear too small

Be thankful I don't take it all


Cause I'm the tax man

Yea I'm the tax man


If you drive a car-car I'll tax the street

If you try to sit-sit I'll tax your seat

If you get too cold I'll tax the heat

If you take a walk I'll tax your feet

Tax man


Well I'm the tax man

Yea I'm the tax man


Don't ask me what I want it for

If you don't want to pay some more


Cause I'm the tax man

Yea I'm the tax man


Now my advice for those who die (tax man)

Declare the pennies on your eyes (tax man)


Cause I'm the tax man

Yea I'm the tax man


And you're working for no one but me

(Tax man)


THE BEATLES
 
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