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Internet Tax Question - California

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  • Internet Tax Question - California

    Here is the situation;

    I am going to be purchasing an expensive software program developed by a California company. You can only get this software from "official" resellers. Now, if I purchase it from a local, here in California reseller, I will pay hundreds of $$$ in taxes. But, if I go online, and purchase it from an out of state "official" reseller I will pay no sales tax. Can I get into any hot water because the software maker is located here in California? Remember, this company doesn’t sell the software directly, but rather uses these "official" resellers.

    Note:

    Not sure if it’s true, but I have heard that California is going to start asking in-state online consumers to voluntarily pay taxes on purchases made from out of state online stores…

  • #2
    Individuals and businesses who purchase items over the internet ARE obligated to pay state sales tax on their purchases. The law of the land today, however, is that the out-of-state vendor does not have to collect the sales tax from you.

    The state of California mandates that you pay this tax with your income tax return or file an official "use tax" return with the State Board of Equalization. More inofrmation for you here http://www.ftb.ca.gov/current/usetax.shtml
    Barry S. Phillips, CPA
    www.BarryPhillips.com

    IRS Circular 230 Disclosure: This response is intended to provide general information and written for educational purposes only. It does not establish a client relationship. This communication is not intended to be used, and cannot be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to any party any matters addressed herein.

    Comment


    • #3
      Is it just California doing this? How long has this been in effect, is it a new tax law? What states are also doing this and what states are not?

      I understand if you had a bussiness and didn't want to take any risks of getting in trouble, but... How is California going to find out what one of its citizens has or has not purchased out of state? What about buying small things like books and toys online? How many people acctually comply with this internet tax law? How many acctually knew about it?

      Thank you for your reply.

      Comment


      • #4
        Virtually all states have similar laws regarding internet purchases -- requiring business and individuals to pay sales/use tax to their state of residence. This is NOT anything new. Admittedly, states have difficulty policing this - just as they do policing that everyone properly reports the proper amount of income on their tax returns. Certainly, everyone does not and many get away with it. However, I am here to advise you on what the law mandates, not to handicap your risk of getting caught if you choose to break the law.
        Barry S. Phillips, CPA
        www.BarryPhillips.com

        IRS Circular 230 Disclosure: This response is intended to provide general information and written for educational purposes only. It does not establish a client relationship. This communication is not intended to be used, and cannot be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to any party any matters addressed herein.

        Comment


        • #5
          Originally posted by BSPCPA View Post
          Virtually all states have similar laws regarding internet purchases -- requiring business and individuals to pay sales/use tax to their state of residence. This is NOT anything new. Admittedly, states have difficulty policing this - just as they do policing that everyone properly reports the proper amount of income on their tax returns. Certainly, everyone does not and many get away with it. However, I am here to advise you on what the law mandates, not to handicap your risk of getting caught if you choose to break the law.
          The laws are not new to the internet either. Before internet sales there were catalog sales.

          Comment

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