Myth shattered; state

Published 12:00 am Tuesday, December 26, 2000

taxes online purchases


Staff Writer

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Dec. 25, 2000 10 PM

For all those who did their shopping on the Internet and by mail order, there may be some surprises in store.

Those Alabamians may not realize they owe state’s use taxes.

Although shoppers are not in trouble yet ­ since state revenue officials have no way of knowing who is not paying ­ Alabama could use the money.

"On the individual side of things, very few people are aware of the fact that they actually owe this," Mike Mason, director of tax policy for the State Revenue Department, recently said.

In Alabama, consumer use tax is due on items purchased for use or consumption in the state on those items which no sales or use tax was paid. Any individuals who have been paying use tax have been voluntarily reporting it by filing a consumer’s use tax return.

And, when filing those tax returns, Alabama residents will ­ for the first time ­ be asked to report any use tax they might owe.

The use tax rate is the same as the sales tax rate.

Mason said anyone who fails to pay the tax and is caught must also pay a penalty plus interest. The state’s tax is 4 percent of the purchase price. Local governments also levy various taxes on purchases.

"Now, taxpayers who purchase items online or through catalog or mail-order sales and do not pay any sales or use tax to the out-of-state retailer will be able to report and pay the Alabama consumer use tax due when filing their 2000 tax year return," said Michael Patterson, the state revenue commissioner.

While the Revenue Department has traditionally monitored purchases and sales by businesses, there have never been routine audits of transactions involving individuals.

Items subject to the use tax are the same ones that would be subject to sales tax if purchased in Alabama, such as computers, books, electronic equipment, furniture, jewelry and clothing.

Although Alabama revenue officials are taking action to change things, they have not been alone in dealing with untaxed transactions.

Gov. Don Siegelman has aligned Alabama with dozens of other states in a "streamlined sales tax project," a series of discussions aimed at an interstate agreement on how such taxes should be collected.

Bruce Ely, a Tuscaloosa lawyer who wrote a position paper for the West Alabama Chamber of Commerce on taxation of sales over the Internet, said the interstate agreement is a "win-win situation, first for the state and localities because they are not going to lose massive amounts of sales tax revenue which is earmarked for education, and secondly you place the in-state retailers and out-of-state retailers on a level playing field."

Ely’s position paper mentions two reports that found Alabama and its cities and counties are losing a total of at least $58 million this year because of Internet purchases in the state.

The discussions coincide with a continuing federal moratorium on any Internet taxation. That moratorium expires next fall.

Unlike some other states, Alabama’s situation is more complicated than just collecting the general 4 percent tax, with cities and counties also looking to collect from catalog, mail-order and online transactions. Alabama has more than 300 taxing jurisdictions.

"We are the poster child for a terrible sales tax system," Mason said.

It is uncertain whether or not the Alabama Legislature will deal with the use tax when they go into their Regular Session on Feb. 6.