Vermonters have long been required to pay a tax on out of state purchases. The problem is, most people don’t.
The state estimates the lion’s share of those purchases is made online. And they will be taxed by the business making the Internet sale if a bill pending in Congress is enacted.
So that leaves the matter of purchases Vermonters make when they cross the border to shop.
Paying a use tax on those items will continue to depend on an honor system that hasn’t yielded much money for state coffers.
Vermont businesses near the state’s eastern border have long argued that the Granite State’s lack of a sales tax drives consumers across the Connecticut River to avoid Vermont’s 6% tax on many items.
But in theory shoppers aren’t saving by crossing the river. They still owe what is called a use tax for anything they bring home that would be subject to a sales tax in Vermont.
Tax filers are reminded of that every year on Line 27 of the Vermont Income Tax Return.
There are no statistics on how much Vermonters spend online versus how much they spend when they buy goods out of state. But we do know that less than 7% of filers declared those purchases on their tax form. The total collected in 2011 was about $1.2 million.
Officials say that represents just a fraction of the purchases made.
“People often tell me as commissioner that they just didn’t realize that the tax is even due,” Says Vermont Tax Commissioner Mary Peterson.
Under-collection of taxes on out of state purchases is a problem nationally and it’s estimated overall that states are losing out on billions of dollars in revenue. Peterson says other states have tried various approaches to collect more from undeclared purchases.
Several years ago Massachusetts tried to get around the problem by asking a New Hampshire tire store to pay a use tax based on the number of Massachusetts customers it served. The attempt failed and New Hampshire passed a law barring the Bay State from collecting sales tax from New Hampshire businesses.
It remains the individual’s responsibility to pay what’s due to the state.
On a recent morning Lorianne Osha of Randolph was shopping in West Lebanon. Osha says she’s paid the use tax in the past.
“I know about it. I know a lot of people know about it. I’ve also heard of people getting a bill from the state of Vermont to pay the tax on bigger purchases,” Osha says.
The tax department says there are occasions when they go after an individual for use taxes, but it’s difficult to know about purchases.
Vermont businesses are also subject to the use tax for goods they purchase out of state.
Commissioner Peterson says compliance among businesses is much better than for individuals. Auditing requirements also make it easier to track business purchases.
