If You Purchase Goods on the Internet, Don’t Be Surprised If You Receive a “Dear John” Letter from the Vendor
PA Dept of Revenue Initiative, along with Supreme Court Decision in Wayfair, Is Closing Sales Tax Loophole for Taxpayers Who Make Online Purchases and Do Not Remit Use Tax
PA resident purchases goods on the Internet (or in Delaware) that are subject to PA sales tax. The vendor selling the goods on the Internet is not registered with the PA DOR because the vendor lacks nexus in PA. (Nexus is the amount of contact a business has in a state that subjects the business to that state’s taxes.) Accordingly, there is no PA sales tax charged by the vendor on the sale. The PA resident is required by law to remit PA’s use tax (6% – the same rate as the PA sales tax) on the taxpayer’s PA-40 personal income tax return. For example, you buy a Rolex watch on the Internet and are not charged any sales tax. The PA resident is required by law to remit to PA a 6% use tax (the same as if the watch had been purchased in PA).
The taxpayer’s remittance of the use tax was on the honor system – PA really had no means to check if the taxpayer remitted all of the use tax that was due. For PA, with Delaware next door without a sales tax, it became even more of a challenge to collect the taxes due it.
The June 21, 2018 Supreme Court decision in South Dakota vs. Wayfair allows states to tax remote – online, catalog, and/or mail order sales. Prior to this landmark decision, a vendor had to have a physical presence in the state to be able to charge sales tax to residents of that state. Now, states are free to collect sales tax from any person based on economic nexus – just having an economic interest in the state – such as from a sale of goods.
Vendors have two ways to comply. They can collect the tax from the customer and remit the tax to each state where it does business, OR provide the state with a list of customers who made purchases during the calendar year and the amount of those purchases and notify the customers to remit the use tax. Which of the two do you think the vendors will select? The latter, because it is less costly to implement.
Should you be a recipient of such a letter and agree with the information provided to you by the vendor, you need to report and remit the use tax to PA. The PA DOR will then cross-check the lists it receives from vendors against your individual income tax return (PA-40). Tax preparers will be requesting the amount of use tax to report on their tax organizers.
If you would like to discuss your business or personal tax planning, tax preparation and other financial concerns with an experienced tax professional, we invite you to call 610-594-2601 today to make an appointment at our Exton PA CPA office to discuss your situation. You can also schedule a consultation at Click Here.
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About F. Bryan Haarlander, EA, CTRS:
Bryan Haarlander is an IRS licensed Enrolled Agent and who owns and operates a specialized tax services firm serving clients in the western suburbs of Philadelphia, PA, which includes the cities of Chester Springs, Coatesville, Collegeville, Devon, Downingtown, Exton, Frazer, King of Prussia, Paoli, Philadelphia, Phoenixville, Pottstown, Radnor, Reading, Wayne, West Chester in Berks, Chester, Delaware, Montgomery and Philadelphia Counties, as well as clients in Delaware, New Jersey, New York and throughout the continental USA.
A Certified Tax Resolution Specialist, Bryan is well-known for his IRS tax resolution expertise and his book How to Resolve Your IRS Tax Debt Problems.