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Do you owe taxes on online, mail order, or out-of-state purchases?

On Behalf of | Aug 6, 2021 | Internal Revenue Service

 

Finding ways to avoid sales tax may seem like a smart way to save money, but a decrease in Massachusetts tax revenues makes state costs increasingly difficult to manage. These costs include things like road fixes and public school funding. Consumers buying online or taking trips to other states that do not charge sales tax minimize state tax revenue, and as a result, the individual use tax was introduced into the Massachusetts tax code.

Massachusettes sales tax

If an online, mail order, or out-of-state retailer does not charge you a 6.25% Massachusetts state tax, you owe the state the tax for your purchase on sales that do not include food and clothing that cost less than $175.

In South Dakota v. Wayfair Inc., the United States Supreme Court ruled that individual states can now require retailers to charge the state sales tax. Big internet retailers, like Amazon, are required to register with MassTaxConnect and collect sales and use tax. Retailers that do not charge the 6.25% tax leave Massachusetts consumers liable for the tax amount. 

Partial tax charges must also be reviewed for taxes owed. If a retailer charges a 2% tax, consumers can receive a credit for the 2% paid and only be responsible for the remaining 4.25%. If the retailer charges more than 6.25%, consumers are not eligible for a credit for the overcharge. Line 34 on the Form 1 Massachusetts Resident Income Tax Return is where tax-related purchases should be reported.

Purchases that should be reported on Line 34

As stated in the 2020 Form 1 Instructions, some commonly purchased items are eligible for taxation, and Massachusetts residents will owe taxes based on the purchase price. Eligible items include:

  • Electronics      
  • Software
  • Appliances 
  • Computers
  • Furniture
  • CDs and DVDs
  • Jewelry 
  • Video games
  • Books  
  • Carpet
  • Artwork 
  • Antiques

The safe-harbor option

Consumers can invoke the safe-harbor option for those who cannot verify required receipts for reporting. This option is available for items that total less than $1,000.

In the safe-harbor option, the tax liability is based on the Average Gross Income (AGI). For example, with an AGI of $40,001 to $60,000, the tax liability is only $31.

Penalties for not paying eligible sales tax

Reporting sales tax is based on the honor system, so individuals who choose not to report may not be caught; however, this may increase the likelihood of being audited with the potential for added penalties. Residents of Massachusettes should consider abiding by recommended sales tax reporting to avoid any issues with individual filings to stay in good standing with the IRS. 

 

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