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California online shoppers skip out on more than $1 billion a year in taxes, state says

December 8, 2010 | 12:29 pm

California online shoppers, stop cheating on your taxes! That's the message sent out by the state's Board of Equalization on Wednesday. The board, the state's tax-collecting arm, estimates that online shoppers rob the state of $1.145 billion dollars a year by not paying sales and use tax on their online purchases.

Most consumers, however, probably don't even know that they are supposed to keep track of the pennies and dollars they are obligated to pay in taxes on their online purchases, and pay up come tax time. The board estimates that the average consumer owes about $60 a year on sales and use taxes.

Tax Here's how it's supposed to work: Say you buy L.A. Times correspondent Barbara Demick's book, "Nothing to Envy," on (who wouldn't want to read about the depressing lives of North Koreans over the holidays?!), for $10.88 (what a deal!). The Board of Equalization expects you to go to a website where you can calculate the sales and use tax you owe (in this case, you'd owe $1.06 if you lived in Los Angeles). Then, you save all the receipts of all your online purchaes, add them up come tax season, and pay the state its due.

"The $1.145 billion dollars in unpaid sales and use tax associated with electronic commerce and mail-order sales that are not voluntarily paid is a significant component of the sales and use tax gap, the difference between taxes owed and taxes paid," according to a release by Jerome E. Horton, the board's vice chair.

Payment of use tax has been required of all Californians since 1935, but the proliferation of online sites and holiday catalogs has made tax evasion more prominent. Consumers are required to pay the tax when the out-of-state retailer doesn't collect the tax -- which is common. It's meant to put brick-and-mortar businesses on a fair playing field with online businesses.

The Board of Equalization estimates that consumers owe $795 million in use tax annually, and that businesses owe $350 million. Numerous bills have been introduced to the Assembly to make the collection process easier, but none have passed so far.

Next year your state income tax return will have a special line for sales and use tax. Which, if consumers act as they have been since 1935, they will probably ignore.

-- Alana Semuels

Photo credit: alancleaver via Flickr