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April 13, 2010 08:11 PM UTC

Our Insane Use Tax Laws

  • 20 Comments
  • by: DavidThi808

It seemed like an easy & fair way to increase tax revenue – enforce the existing use tax law. Sounded good to me at first too. Unfortunately, when you dive in to it – OMG it’s a fucking nightmare. If the state and localities actually try enforcing this my guess is we’ll see a revolt that makes TABOR look tame in comparison. (Note: this post ties in to a post I did on sales tax.)  

Ok, first up is the expense of determining the tax. We had not paid this at my company because we did not know it was due (and yes, ignorance is no excuse). The statue of limitations on this is three years so we went back and determined what we owed for the last three years. We took a random month from each year (the first one we picked for 2009 had nothing so we picked another month). We then multiplied each by 12, and then added in the late fees due on each. (We added in the late fees without being asked because that’s cheaper than waiting to see if we’ll be assessed them, and then going through the effort to pay that.)

So the total taxes we owed for three years? City of Boulder $184.34 and State of Colorado $205.00 (plus $50.00 for a sales tax license). Total direct cost to determine what is owed? $360.00. That’s right – the cost to determine the tax owed is essentially identical to the tax itself. The word disproportionate seems inadequate to describe this.

But small potatoes yes? Actually the estimate I heard is that enforcing this on business will bring in 18 million. So that means the total cost to business will be on the order of 36 million – 18 million in tax and 18 million in overhead. What if that 18 million in overhead went instead to hiring people in new jobs? Let’s say 50K/employee – that’s 360 jobs. Not gigantic – unless you’re one of those 360 people.

The problem here is not the additional 18 million going to the state – it’s the 18 million of overhead required to determine the amount. And the business property tax falls in this same category, where the cost of determining the amount due can match the tax paid. Taxes with this level of overhead are brain-dead.

And the state expects individuals to do this? Not gonna happen – no way, no how. People are not going to spend a couple of hours to figure out they owe an additional $20.00. And getting companies like Amazon to report it only partially solves the problem, because there are gifts, items used out of state, etc.

Ok, next is my favorite (and by favorite I mean do these people even think) Q & A.

Q: My parents in Hawaii order gifts for us from Amazon delivered in Colorado. Is use tax due on those presents sent here to Colorado? And is the tax owed by me or by my parents as they purchased it? And if it’s my parents, does the state have nexus with them?

Colorado: Use tax is due on items shipped into Colorado, whether the buyer is in Colorado or not. In the example cited, we believe the parents do have sufficient nexus in Colorado and are required to file a use tax return.

Boulder: These are excellent questions for you to discuss with your tax advisor

State of Colorado – if you claim nexus on a gift sent be residents of another state – is there anything you won’t claim nexus on? I’m sure you would like this to be true but wishing doesn’t make it so (if it did, all little girls would have a pony). In addition, how on earth are you going to go after residents of other states to pay use tax?

City of Boulder – really? Are you serious. You want every resident who receives gifts from out of state to talk to a tax advisor? Just because you have a medical marijuana license does not mean it’s ok to partake at work.

And then we get the winner – use tax due on items for which a lesser tax was paid. This says that if you paid less than the tax due in Boulder elsewhere, and then bring the goods to Boulder to use, you owe the difference. For example, you buy something in Longmont (2.275% tax) on your way home to Boulder (3.41% tax) to use in Boulder. You owe a use tax of 0.41% on that purchase. That’s right, buy a washer at the Longmont Home Depot for $0.04, take it home to Boulder to use, and you owe the City of Boulder $0.000164.

So first off, I think it’s safe to say 99% of Colorado residents owe use tax. Even those that have never made a purchase online.

Second I think it’s safe to say 100% of Colorado residents will tell the department of revenue where to stick it if they try to enforce collecting this tax. I think it’s safe to say most businesses aren’t going to track this lesser tax part – the expense of doing so would be way above the actual amount owed.

Can we please bring some sanity to our use tax laws? Because collecting them is not going to happen in a lot of cases. And in the remaining cases the overhead is ridiculous. Short term – how about setting it that if a person or business owes under $1,000.00/year in use tax, nothing is due.

Medium term – if we’re going to have a sales tax, then let’s make it a single amount across the state. The state collects it and apportions it out, based on location to the city (if there is one), county, and itself. This eliminates the lesser tax issue. It also will increase the number of online companies that will collect tax for the state of Colorado.

And what we will have to do eventually is eliminate the sales tax and increase the income and property tax. We are on a fast road where the economy is bits instead of atoms. And a sales tax on bits is, by definition, problematic. The sooner we do this, the better for the State of Colorado.

In the meantime, yes I bought a $0.04 washer in Longmont. Yes I brought it to Boulder to use. And no I didn’t pay the $0.000164 use tax due. And I’m not going to! City of Boulder Department of Revenue – your move 🙂

Comments

20 thoughts on “Our Insane Use Tax Laws

  1. for a company in MN that sells work uniforms and such throughout the country.

    Don’t get him started on Colorado municipal use tax.  And to top it off, many of the municipalities can’t accept e-checks so he has to actually mail them in.

    There is an answer and it all starts at repealing TABOR.

    1. Have you ever made a purchase in a city other than where you live, and then brought that item home to use at home? When you did, did you pay the use tax on the difference in sales tax rates?

      Getting to the issue of use tax on Internet purchases – meet the industry half way. Put together a straightforward, sensible, and competent system. I’m not saying don’t have a use tax – I’m saying make it something workable.

      Because it is brain dead to have a system so complex and mismanaged that companies spend as much determining what they owe as they do in the tax itself. Or do you think that level of overhead is ok?

      1. that you should have consulted a tax attorney or accountant, who in short order would have been able to both explain the law and the practical approach to your issues.

        For example, as a practical matter no jurisdiction goes after use tax from individuals, except in the case of certain big ticket items (like airplanes).

            1. 1. You seem to have contempt for the law (ignore ones that are too difficult to follow).

              2. And contempt for businesses (who cares if the cost of following a law is excessive – the state will grab money any way it can).

              3. And dismissive of poor administration by the state.

              You can make the state the enemy of the people and of the private sector. But if you do, I think you’ll find that gives the Republicans a big leg up in the next election.

              1. Project much?  You seem to be describing yourself.

                In fact, I am in compliance with my use tax obligations, since I live in an area that only imposes state sales tax, anywhere I shop I pay a higher sales tax rate than where I live.

                Are you?

                1. When I learned about the tax due for the difference in tax rates I thought of trying to pay it, but I realized there is no way I could ever figure out what I owe. I buy in a bunch of areas around Boulder, not to save a couple of pennies in the sales tax difference, but because it’s the most convenient place to get something.

                  I’m fine with paying my fair share of taxes. But when the government creates an obligation it is impossible to figure out – that’s bad. The cities should not have requirements that are impossible.

                  1. as a matter of administrative convenience, taxing authorities don’t really care about such individual purchases.

                    Local jurisdictions will pick it up on business audits, though.  Denver is notorious for it.  However, that kind of use tax is small change;  the bulk of audit adjustments are for purchases that were never taxed, not those that were not taxed enough.

                    The businesses I work with manage learn and apply the law, including filing use tax returns.  It’s a learning process, and it takes building accounting discipline and procedures to comply efficiently.  Of course, if you don’t know what to do it will cost you more to comply.  But now you know, and the compliance costs should be minimal going forward.  

        1. 1. Your answer is individuals should ignore a law if the state is unlikely to go after you. That’s a sad commentary on your view of our laws.

          2. The overhead I listed above was not to determine the practical approaches. Nor was it for personal taxes. It was listing out the expense of calculating the use tax my business owed.

          3. You never spoke to my central request – why won’t the state put together a straightforward, sensible, and competent system? Do you think it’s fine that we have such a messed up system administered by a do-nothing director?

          Finally it does not all start & end with TABOR – that’s a cop-out. TABOR does not require that we have a complex high-overhead system. TABOR does not require that the Director of the Department of Revenue do nothing.

          How about speaking to the problems listed above?

            1. Unlike you, I’ll answer your question – yes I have driven over the speed limit at times. And when I’ve received a ticket I’ve paid it.

              As to home-rule cities, I’ve been talking about what is under the control of DOR – and that is a mess, and could be significantly improved if it was under competent leadership and if the state legislature revised the state laws.

              You’re really big on excuses and not much for actually stepping up to fix things. By any chance do you work for the Dept of Revenue?

              1. What have I excused?  I said I pay my use tax liability–which happens to be zero.  And when I had a business, I paid my company’s use tax liability, as well.

                And speeding is breaking the law, not just when you get a ticket, so your answer is b.s.  Now, having copped to knowledge of how use tax works, are you going to start filing a consumer use tax return?  I kind of doubt it.

                And you answered your own question by dismissing it.  The state cannot adopt a rational sales tax system (for example, tax all goods and services, like New Mexico does) because of TABOR.

                1. As to paying the sales tax difference – I checked and Superior and Broomfield have higher sales tax rates than Boulder so I’m good for 99% of my shopping.

                  As to TABOR – it doesn’t say you can’t change the system, just that it has to be put to a vote. So let’s get the legislature to propose a sane system and put it up to a vote.

                  Now if you want to say that until a given TABOR measure is passed by the voters there are things we cannot do, then I’ll agree with you.

  2. So we sent in our use tax payments for the last 3 years to the state. And we received a letter back.

    Was it a thank you? No.

    Was it information about this year’s taxes? No.

    It was a bill for $40.00 for a sales tax license for the last 3 years. Because we paid the tax for the last 3 years, we have to retroactively get a sales tax license for those past 3 years.

    No one knows how to say thank you like our State Department of Revenue 🙂

    1. But I actually like an impersonal, impartial bureaucracy. It’s the mark of any great civil society when you get the same treatment at the DMV as the DMV worker’s mother.  🙂

      Or just a really nice company that remembers to pay its tax.

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