It seemed like an easy & fair way to increase tax revenue – enforce the existing use tax law. Sounded good to me at first too. Unfortunately, when you dive in to it – OMG it's a fucking nightmare. If the state and localities actually try enforcing this my guess is we'll see a revolt that makes TABOR look tame in comparison. (Note: this post ties in to a post I did on sales tax.)
Ok, first up is the expense of determining the tax. We had not paid this at my company because we did not know it was due (and yes, ignorance is no excuse). The statue of limitations on this is three years so we went back and determined what we owed for the last three years. We took a random month from each year (the first one we picked for 2009 had nothing so we picked another month). We then multiplied each by 12, and then added in the late fees due on each. (We added in the late fees without being asked because that's cheaper than waiting to see if we'll be assessed them, and then going through the effort to pay that.)
So the total taxes we owed for three years? City of Boulder $184.34 and State of Colorado $205.00 (plus $50.00 for a sales tax license). Total direct cost to determine what is owed? $360.00. That's right – the cost to determine the tax owed is essentially identical to the tax itself. The word disproportionate seems inadequate to describe this.
But small potatoes yes? Actually the estimate I heard is that enforcing this on business will bring in 18 million. So that means the total cost to business will be on the order of 36 million – 18 million in tax and 18 million in overhead. What if that 18 million in overhead went instead to hiring people in new jobs? Let's say 50K/employee – that's 360 jobs. Not gigantic – unless you're one of those 360 people.
The problem here is not the additional 18 million going to the state – it's the 18 million of overhead required to determine the amount. And the business property tax falls in this same category, where the cost of determining the amount due can match the tax paid. Taxes with this level of overhead are brain-dead.
And the state expects individuals to do this? Not gonna happen – no way, no how. People are not going to spend a couple of hours to figure out they owe an additional $20.00. And getting companies like Amazon to report it only partially solves the problem, because there are gifts, items used out of state, etc.
Ok, next is my favorite (and by favorite I mean do these people even think) Q & A.
Q: My parents in Hawaii order gifts for us from Amazon delivered in Colorado. Is use tax due on those presents sent here to Colorado? And is the tax owed by me or by my parents as they purchased it? And if it's my parents, does the state have nexus with them?
Colorado: Use tax is due on items shipped into Colorado, whether the buyer is in Colorado or not. In the example cited, we believe the parents do have sufficient nexus in Colorado and are required to file a use tax return.
Boulder: These are excellent questions for you to discuss with your tax advisor
State of Colorado – if you claim nexus on a gift sent be residents of another state – is there anything you won't claim nexus on? I'm sure you would like this to be true but wishing doesn't make it so (if it did, all little girls would have a pony). In addition, how on earth are you going to go after residents of other states to pay use tax?
City of Boulder – really? Are you serious. You want every resident who receives gifts from out of state to talk to a tax advisor? Just because you have a medical marijuana license does not mean it's ok to partake at work.
And then we get the winner – use tax due on items for which a lesser tax was paid. This says that if you paid less than the tax due in Boulder elsewhere, and then bring the goods to Boulder to use, you owe the difference. For example, you buy something in Longmont (2.275% tax) on your way home to Boulder (3.41% tax) to use in Boulder. You owe a use tax of 0.41% on that purchase. That's right, buy a washer at the Longmont Home Depot for $0.04, take it home to Boulder to use, and you owe the City of Boulder $0.000164.
So first off, I think it's safe to say 99% of Colorado residents owe use tax. Even those that have never made a purchase online.
Second I think it's safe to say 100% of Colorado residents will tell the department of revenue where to stick it if they try to enforce collecting this tax. I think it's safe to say most businesses aren't going to track this lesser tax part – the expense of doing so would be way above the actual amount owed.
Can we please bring some sanity to our use tax laws? Because collecting them is not going to happen in a lot of cases. And in the remaining cases the overhead is ridiculous. Short term – how about setting it that if a person or business owes under $1,000.00/year in use tax, nothing is due.
Medium term – if we're going to have a sales tax, then let's make it a single amount across the state. The state collects it and apportions it out, based on location to the city (if there is one), county, and itself. This eliminates the lesser tax issue. It also will increase the number of online companies that will collect tax for the state of Colorado.
And what we will have to do eventually is eliminate the sales tax and increase the income and property tax. We are on a fast road where the economy is bits instead of atoms. And a sales tax on bits is, by definition, problematic. The sooner we do this, the better for the State of Colorado.
In the meantime, yes I bought a $0.04 washer in Longmont. Yes I brought it to Boulder to use. And no I didn't pay the $0.000164 use tax due. And I'm not going to! City of Boulder Department of Revenue – your move :)
