Taxpayers Voluntarily Forked Over $4.8 Million in Online Sales Taxes

Tennessee revenue officials say they are taking steps to ensure the public understands they’re supposed to be paying sales taxes when they shop online, although very few taxpayers do it.

Last year, the state collected $4.8 million in use taxes voluntarily paid. Economists suggest in the same period, the state was owed more than $300 million by its citizens.

After months of controversy about whether to allow Amazon.com to slide on playing tax-collector for the government in exchange for creating new jobs, Gov. Bill Haslam found a compromise. The state plans to let Amazon off the hook for sales tax collections until 2014, or until the federal government comes up with a national plan.

The governor has rejected suggestions that Amazon’s tax collections in two years will have the same effect as a tax increase on the people of Tennessee. Lawmakers have as well.

“I do not see this as a tax increase at all. They’re paying the taxes that, in my opinion, they owed anyway,” Lt. Gov. Ron Ramsey told reporters earlier this month.

Last fiscal year the state collected just over 3,000 consumer tax returns with an average of $1,500 in money to cover their tax on online purchases.

TNReport traded emails this week with Linda Kelley, the director of taxpayer and vehicle services in the Tennessee Department of Revenue, about the rules behind online sales tax collections.

TNReport: Is it illegal for customers to skip out on paying sales taxes on online purchases when the seller, such as Amazon.com, doesn’t collect the taxes?

KELLEY: When someone buys merchandise online or through a catalog, and the seller of the merchandise does not collect sales tax, the consumer who purchased the item has a legal obligation to file and pay use tax on the merchandise. This generally occurs when a user purchases articles from an out-of-state dealer not registered for Tennessee tax. This use tax has been on the books since 1947 and is the same rate as the sales tax. (Tennessee Code Annotated Section 67-6-203). The Department of Revenue’s Sales & Use Tax Guide provides additional information on “Who is Liable for Use Tax” on Page 9.

TNReport: How much did the state lose this year in online sales tax collections?

KELLEY: It is not possible for us to answer this question because the data is simply not available.

TNReport: How many people actually do pay their online sales taxes to online retailers? And how much did they pay last budget year?

KELLEY: During fiscal year 2011, 3,041 consumer use tax returns were filed with the Department. These taxpayers voluntarily remitted a total of $4,783,583 for the period.

TNReport: When do they pay the tax?

KELLEY: Depending on the frequency of purchases, consumers must file the use tax return and pay the taxes either monthly, quarterly, semiannually, or annually. The return is due on the 20th of the month following the close of the applicable period. Consumers can e-file their consumer use tax via Revenue’s Web site at http://www.state.tn.us/revenue/onlinefiling/salesanduse/salestaxefile.htm.

TNReport: What is the penalty for individual taxpayers for not paying the tax on internet purchases?

KELLEY: There is a range of penalties imposed, depending on the specific circumstances. Taxpayers who are delinquent in paying the tax are charged a penalty of anywhere from 5 percent to 25 percent plus interest, depending on the length of time they have been delinquent. If the failure to pay taxes is determined to be due to negligence, the taxpayer would face a penalty in the amount of 10 percent of the tax due along with interest. If a failure to pay taxes is determined to be due to fraud, the taxpayer would receive a 100 percent penalty along with the interest due.