Comedian Bill Engvall’s most famous routine focuses on folks who should be wearing “Stupid” signs—like those dim bulbs who take blow dryers into the shower. “Here’s your sign.” Last week while filling out my California Form 540, it occurred to me that ordinary taxpayers who sweat compliance with line 49, the Use Tax, might qualify for a Engvall placard.
The Use Tax, line 37 on Form 540A, applies to out-of-state purchases that were made, for example, “by telephone, over the Internet, by mail, or in person.” Its purpose is to recoup sales tax revenue that individuals avoid when buying out of state.
This statute, as we are solemnly informed on page 6 of the tax booklet, has been around since 1935 and was presumably instituted to level the playing field for California businesses. Since 2003, a specific line has been included on income tax forms to make it “easier for consumers to report and pay use tax on their purchases.” (How thoughtful of our legislators!)
Folks who purchased cars, boats, or airplanes in other states have good reason to comply with this statute since records of these purchases are often available to California’s Board of Equalization. What can’t be verified, absent an enormously extensive and invasive snooping apparatus, are the electronic, mail, or out-of-state purchases offered as illustrations on the BOE’s use tax Internet pages. Here’s a sample:
“Last week while visiting relatives in Maine I purchased $200 in stereo equipment for use with my system at home in Sacramento. When I purchased the equipment I was charged 5% Maine sales tax. Do I owe California use tax on this purchase?”
Answer: “Yes, however, Revenue and Taxation Code section 6406 allows you to take a credit for sales or use tax paid to another state. Therefore, a portion of the California use tax you owe on the purchase is offset by the sales tax you paid to the retailer in Maine. Since the sales and use tax rate in Sacramento is 7.75%, use tax of $15.50 would be due on your purchase. However, after deducting the $10 in Maine sales tax you paid when you purchased the equipment, you would only owe $5.50 in California use tax on the purchase.”
Wow! And people complain about the Patriot Act. (For North County readers, I note that the tax rate for Oceanside, Escondido, and San Marcos is 7.75%, while the amount for Vista is 8.25%. I should also mention that these BOE net-pages have a shadowy notation, attached to nothing in particular, that says: Data Last Updated 12/31/1969.)
A six-letter sign is reserved for anyone sending a check to Sacramento for the difference between the sales tax paid in Maine and the tax that would have been paid in Vista for a $200 purchase. The good news is that the use tax law has a large exception for goods purchased abroad—for example, from Mexico. State taxpayers will also be glad to learn that información para el votante is included in their tax booklets.