Love your Kindle? Prepared to pay more taxes to use it?

This week, the LA times ran a story about California seeking to require sales tax on Amazon purchases, despite the fact you are in California but Amazon is not based in the state. Why? So that California can generate sales from the site on all purchases made by residents.

This may seem like quite a stretch but California already has a Use Tax (you ‘use’ – read buy – it, you pay taxes) on the books. Just with the current fiscal conditions, the state is looking to enforce it.

But how are they going to do it? Let’s take a look at the excerpt from the Franchise tax Board on Use Tax:

""You may owe use tax on purchases you made from out-of-state or Internet sellers. Use tax is similar to the sales tax paid on purchases you make in California. You may report use tax on your income tax return instead of filing a use tax return with the State Board of Equalization. To report use tax on your income tax return, use the Use Tax Worksheet in the tax booklet.""

I don’t know about you, but I have no idea how to interpret that code, so I’m not surprised no one at the FTB knows either.

In my practice we have been inquiring the FTB about whether a taxpayer actually incurred some use tax or not in 2009 and are required to report same in their tax returns.

To add fuel to fire I have recently read that the FTB may look at the USE TAX as an audit area.

So it’s a damned if you do and damned if you don’t situation.

Let’s break it down: If you don’t report your purchases (and associated taxes) you could be audited. If you do report your purchases this could trigger a red flag and the FTB audit for not declaring enough. Go figure.

Here’s another problem. What about if I live in California, but am vacationing in Arizona and I download a book and read it while in Arizona. Do I have Use Tax on this?

How is the FTB going to rule on that?

And lastly, who is going to enforce this new tax? The FTB, who are already overworked and over burdened, or some other agency?

Good luck and welcome to sunny, beautiful, yet aggressively taxed, California.