If you're like a lot consumers, you rely on the Internet for holiday shopping.
It's much more convenient to sit in your bathrobe and shop than fight the crowds at the mall. However, if you do shop from your living room or kitchen table, remember to save your receipts or you may end up being audited by the IRS on April 15. Many websites do not collect sales taxes, but that does not mean it is not owed.
Paying sales taxes for items purchased on the Internet is the law. The good news is that California passed a law this year where many larger e-tailers like Amazon.com will collect sales taxes for you starting next year. But what to do this year?
Here are five easy steps to follow during your holiday shopping thanks to the California State Board of Equalization. The Board of Equalization collects California state sales and use tax, as well as fuel, alcohol, and tobacco taxes and fees that provide revenue for state government and essential funding for counties, cities, and special districts, according to its website.
STEP ONE: Check if you are being charged sales taxes on your Internet purchase. If you are, then you don’t need to follow the remaining steps. If the Web site is not charging sales taxes, then proceed with the following steps.
STEP TWO: Keep those receipts! In this day and age, receipts come in many forms. If you are buying items online, there is a good chance an invoice was sent to your email address. So, be sure to look there.
STEP THREE: Calculate the tax rate. This is always challenging. To do this, multiply the total purchases by your sales tax rate. If you don’t know the sales tax rate where you live; go to the state’s Board of Equalization website. Then go to Taxes & Fees -> Sales & Use Tax -> Find the Tax Rate -> Tax Rates Effective -> page and select the first letter of the city or county in which you reside.
STEP FOUR: Go to the Board of Equalization’s Web site link, http://www.boe.ca.gov/pdf/pub79b.pdf, to download and print the “Use Tax Return” form. When in doubt, you can always call 1-800-400-7115 or e-mail the BOE with your questions.
Complete the form, which is easy to fill out. It has space for six items you may have purchased online; so if you need more space, attach a separate sheet with your information.
STEP FIVE: Pay your taxes. Paying taxes may not be as fun as getting or giving gifts during the holiday season, but when you follow the law, you are not only protecting yourself from possible fines and penalties, and you are also supporting your community. Sales taxes fund important local services, such as police and fire departments, parks, libraries and many others.
According to Laguna Niguel resident, Norm Bour, community development director for OPIS Network, a company providing outreach programs to support the for-profit and nonprofit sectors, until 2011 there was great incentives to shop online with out-of-state retailers; it avoided the California sales tax, but that window is closing. And you could inadvertently be caught up in the cross hairs of the Franchise Tax Board or Board of Equalization if you do not keep proper records.
"Many non-California Web sellers do not collect sales tax, but that does not relieve you of your obligation to pay it," he said.
- Some hints to stay out of trouble:
- Check to be 100 percent sure that the sales tax may not be included in the total price.
- Keep your receipt and it would be wise to print out hard copy, too. The likelihood of any type of audit is remote, but it is best to be prepared. Go online to figure out how much tax IS due. The California Board of Equalization has a four-page booklet (http://www.boe.ca.gov/pdf/pub79b.pdf) with the proper forms to actually pay your taxes.
- Last, pay the taxes with your annual tax returns.
"The reality is, 99 percent of you will not do that, but that risk falls to you. The state loses more than $1 billion dollars each year due to our of state sellers and non-collection of taxes."