Have you ever heard of the “use tax?” According to Colorado law, if you purchase goods from outside the state (say, via mail order) without paying sales tax, you’re supposed to file and pay use tax on those goods.
But hardly anyone in Colorado who legally owes the use tax actually pays it. Most people who technically owe it have never even heard of it. For all practical purposes, the law has been unenforceable. With changes in tax forms this year, it may become much more enforceable.
Right now, Colorado law declares you a felon—yes, a felon—if you “willfully” try to “evade or defeat” the use tax. In previously years, most people could honestly (or at least plausibly) say they did not “willfully” evade the use tax—they could say they had never heard of it.
But this year the Colorado Department of Revenue incorporated the use tax into the standard state income tax forms, so anyone who signs the income tax form can no longer plead ignorance of the use tax.
Lynn Granger, Director of Communications for the Department of Revenue, explains the change:
Consumer use tax statutory filing and remittance requirements have existed in Colorado since 1937. Consumer use tax must be reported and paid by Colorado consumers in the cases where no sales tax was charged. Historically, in order to self-report consumer use tax, if the vendor did not previously collect sales tax, citizens can fill out [specialized forms]. Beginning in income tax year 2015, Colorado taxpayers may report and pay consumer use tax as they complete their individual income tax return (104) on paper or electronically.
By the term “may,” obviously Granger does not mean you “may or may not” pay the tax, depending on your preferences. She means you “may” either submit the use tax via the income tax form or via separate use tax forms. Legally, you don’t have the option not to pay the tax if you owe it.
In Granger’s view, the Department of Revenue is doing people a favor: “All we are trying to do is make it a little more convenient for folks to self-report.” Undoubtedly some will find the new forms more convenient.
But the most important effect of the new forms is to put taxpayers on notice that they owe the tax, with the unstated premise that the government can prosecute them as felons if they don’t cough up.
It’s hard to predict, but my guess is that, despite the new forms, most people who technically owe the use tax will continue to ignore it. The difference is that, with the new forms, government will have a much easier time going after people over the tax. Granger said she has heard no word about possible increased enforcement actions at this time.
Having heard of the new section of the income tax form, several state senators, led by Mesa County Republican Ray Scott have introduced Senate Bill 16-130, which would prevent the Department of Revenue from incorporating the use tax into income tax forms in future years and from using this year’s forms for auditing purposes.
I understand the desire not to turn huge numbers of Coloradans into felons whom government prosecutors can pursue at will. At the same time, I sympathize with the Department of Revenue, charged by the legislature with enforcing an unenforceable law.
Part of the problem regarding use taxes goes away this year, given that Amazon started collecting Colorado sales tax in February. However, that doesn’t affect use taxes for 2015 and before for Amazon sales, and it doesn’t affect goods purchased from any other vendor. So the broader problem remains.
While SB 130 would give relief to Coloradans from having to declare themselves tax scofflaws on their income tax return, the legislature needs take more substantive action to address the underlying problem. Last year I proposed that the legislature could exempt “a person’s first $6,000 per year in out-of-state purchases” from the use tax. I think that would eliminate most of the problem in terms of turning Coloradans into felons.
At least some state legislators have peered down the rabbit hole of use tax laws and found sympathy for Taxpayers in Wonderland. But legislators also need to own up to the fact that the legislature dug that hole in the first place.
Author and blogger Ari Armstrong writes at AriArmstrong.com. He wrote this for the Independence Institute, a free market think tank in Denver.