Just 1% of taxpayers report unpaid sales tax
Fact: Total sales by online retail giant Amazon increased by 79 percent—from $19.1 billion to $34.2 billion—between 2008 and 2010.
Fact: In that same period, sales taxes voluntarily declared and paid by Wisconsin taxpayers on online or out-of-state purchases rose 11.2 percent.
Why is that gap important?
The number of Wisconsin taxpayers who follow the law and voluntarily pay sales tax on online and out-of-state purchases when they file income taxes “is low,” state Revenue Secretary Rick Chandler conceded in a WisconsinEye interview last week.
“Low” seems like quite an understatement.
Data suggest another word—“pathetic”—might better describe taxpayers’ lack of compliance with the tax code when it comes to online or out-of-state purchases.
--When they filed 2010 income taxes, 28,878 taxpayers voluntarily acknowledged owing sales taxes on out-of-state and online purchases.
--Since there were 2.86 million tax returns filed that year, one out of every 100 taxpayers voluntarily complied with the law.
--The 28,878 taxpayers who reported owing sales taxes on those purchases paid an average of $69 each.
Chandler estimated that the low—to use his term—compliance rate costs state government about $150 million a year in uncollected sales taxes.
What would $150 million buy?
It would fix the deficit projected by mid-2013 in Medicaid, which provides health care for the poor, elderly and disabled. It would run the state Department of Corrections for seven weeks. It would pay for the Legislature for more than two years.
Chandler attributed the dismal tax-code compliance rate to both ignorance and scofflaws.
“A lot of people are unaware of it or just choose to not go to the trouble of complying,” he said.
“They are supposed to voluntarily say, ‘I made this purchase, and I’m going to be sending in this (sales) tax owed to the state.’”
For those of you gathering records needed to file your state income taxes by the April 17 deadline, here is what short-form Line 26 asks of you:
Sales and use tax due on Internet, mail order or other out-of-state purchases—If you certify that no sales or use tax is due, check here_.
Which brings us to letters the Revenue Department recently sent to about 3,000 Wisconsin taxpayers asking them to—please!—check whether they owe unpaid sales taxes on Internet, out-of-state or mail-order purchases between January 2007 and December 2010.
And, the letter continued, if taxpayers owe any additional sales tax on those purchases, they should add 18 percent interest per year and send in “any payment due.” The Revenue Department will also add “late filing fees” but “no penalties will be assessed.”
The letter was accompanied by a “tax worksheet,” which state officials want completed and returned “even if no tax is due.”
But it’s the opening sentence of the Dear Taxpayer letter that may cause the most confusion and anger because it uses the dreaded word “audit.”
Here’s that greeting: “As part of an ongoing office audit project, we are requesting that you review your records for purchases of taxable merchandise used, stored, or consumed in Wisconsin to determine if you reported and paid the correct amount of Wisconsin state, county and stadium sales and use taxes.”
No, Chandler said, taxpayers who got the letter are not having their tax returns audited.
It’s a standard letter—just like the ones that have been going out for 15 years, Chandler added. And letters like this have resulted in taxpayers paying an additional $10 million in taxes and interest in recent years.
The Revenue Department got the names of those 3,000 taxpayers from third-party groups—including the U.S. Customs agency that monitors what international travelers declare when they return to Wisconsin and some on-line retailers who do provide state-by-state information on customers.
Chandler said it’s only taxpayers who are on their honor to report unpaid sales taxes on out-of-state or online purchases. Congress has never passed a law requiring retailers to disclose whom they sell to and what those items cost, he added.
Every state is losing sales tax money in this way, Chandler noted.
“Congress clearly has the power to regulate this area,” he added. “The solution is in Congress.”
Steven Walters is a senior producer for the nonprofit public affairs channel WisconsinEye. This column reflects his personal perspective. Email email@example.com.