Consumer Alert: Don't throw out that letter! It's time to pay tax man for online purchases
It's long been one of the perks of shopping with certain online retailers: no sales tax.
Now, it looks that perk is gone.
If you spent more than $100 shopping on a specific site in 2017, don't be surprised to see a letter from that retailer, with a breakdown of all the items you didn’t pay sales tax on.
“We're looking at leveling the playing field for brick and mortar businesses that are here and have invested in the community and are complying with the law,” said Neena Savage, who is a tax administrator at the Rhode Island Division of Taxation.
In August, Rhode Island passed a law forcing online retailers to either collect sales tax, or send a letter notifying customers they still owe the state what's called a use tax.
“Today, the law doesn't make them collect the sales tax, and that's why Rhode Island and Massachusetts and others are trying to get data from the sellers that aren't collecting,” said Scott Peterson, who is the vice president of U.S. Tax Policy at Avalara, a company that helps online retailers collect sales tax.
Every year, Peterson said, states lose tens of billions of dollars in uncollected tax revenue from online sales.
Peterson said, right now, there's no law mandating online retailers collect sales tax. Many companies don't want to because it's expensive to collect, with different rates in different states.
“I can manage my costs relatively well if I do exactly the same thing every time,” said Peterson. “But if I have to do it a little bit different every time and every place, that gets expensive.”
Bottom line: if retailers aren't collecting sales tax, it's your responsibility to pay the state directly.
Or, if you haven’t filed yet, you can include the use tax information on your Personal Income Tax Return.
“There's a line on the front of the personal income tax form where they can put that amount on their personal income tax return,” said Savage.
Some states like Connecticut are taking it a step further, demanding retailers rat out their customers and provide the state with a list of purchases made by Connecticut residents.
Rhode Island isn't taking it that far, but the division of taxation says it's still not a good idea to ignore these letters.
“It’s unrealistic for me to say that they don't face any consequences because I can't see into the future, but I think they should make every effort to comply,” said Savage.
The law could change after the Supreme Court hears South Dakota vs. Wayfair in April.
South Dakota is arguing that any retailer that collects more than $100,000 from South Dakota residents must collect state sales tax. If the Supreme Court rules in South Dakota’s favor, expect online retailers to start collecting sales tax at the time of purchase.
For more information about the Rhode Island use tax and links to additional forms, click here.