Arizonans who buy items online to escape the state sales tax will now be asked each year to pay it - or be forced to lie about it.
A new law that takes effect later this month will require Arizonans to spell out each year, on their state income-tax forms, exactly how much they spent on items from mail order, phone or online retailers who did not charge them tax. They then will be required to pay 6.6 percent of that figure, the current state sales tax, when they file their returns the following spring.
On a $50 audio player or piece of software, that computes out to $3.30.
IT'S NOT A NEW TAX
Strictly speaking, Arizonans already are required to pay what are known as "use taxes" on items they buy elsewhere.
But the mandate is all but invisible to individuals, said state Rep. Jack Harper. In fact, he said, they would be hard-pressed to find the existing applicable form from the state Revenue Department to even report it.
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Harper said the new law will make the obligation obvious. "If somebody doesn't know they're supposed to report use tax, then they're not cheating on their taxes," said Harper, a Republican from Surprise. "If it's on a line on their (income) taxes, then they have to write that they don't owe any use tax and think about it."
State Rep. Matt Heinz, a Tucson Democrat who first came up with the idea, said trying to collect the tax is only fair to local businesses, which are competing with out-of-state retailers who can market their items on the basis that they do not collect Arizona's sales tax.
"More and more of our economy goes to online or Internet-based exchanges," Heinz said, meaning that more and more of the state's sales tax base will disappear unless there is a reliable method of taxing those transactions.
HOW MUCH IS AT STAKE?
How much the state might collect is unclear.
One estimate prepared for the state indicates the collection could be close to $1 million.
That compares with the more than $270 million already collected in use taxes now, largely from businesses buying supplies and equipment from other states.
There are indications that even a beefed-up voluntary system like Arizona's new one will have an effect.
At least 23 states already have a similar requirement, said Bob Kamman, an Arizona accountant and attorney. "Collections, while far from spectacular, are significant," he said.
In Michigan, he said, voluntary use tax payments in 1998 were $240,000. The following year, after the income-tax reporting requirement went into effect, they skyrocketed to $2.9 million.
Looking at the issue another way, Kamman said only about 200 individuals in Massachusetts reported use tax in 2001, before there was a line on the income-tax form. In 2002, the first year of reporting, that shot up to more than 11,000.
WILL IT BE ENFORCED?
Of course, Arizona's projection of additional cash is premised on voluntary compliance.
And enforcement will be an issue, said Heinz.
"People can certainly just put a zero there (on the tax form) and say you have no liability, whether it's true or not," Heinz said. "But I believe that there are a great deal of honest people in the state," who would be willing to pay the tax once they're made aware they already owe it, he continued.
Ernest Powell, a manager in the tax research and analysis section of the Revenue Department, said he cannot comment on any policies about how and when his agency audits individual taxpayers.
Kamman, though, said the Revenue Department isn't likely to be out looking for cheaters.
"The state simply does not have the resources to audit the personal spending habits of every Arizonan," Kamman said. "The amount of tax collected will not justify the effort."
In Kamman's experience, nearly all individual income-tax audits done by the state involve picking up on adjustments made to tax returns by the Internal Revenue Service. "And the federal auditors don't look into whether use tax was paid," he said.
"Auditors might ask to see credit-card records,'' he said. "But those won't show whether sales tax was paid."