Most Unaware of "Use Tax" Required on Purchases Made Online

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Did you know if you bought something online last year free of sales tax you still have to declare it when you file your income taxes?

Most don't, which is why the Michigan Department of Treasury is trying to get the word out ahead of tax day.

It's called the "use tax" and it applies to any transaction made with a retailer which does not collect a sales tax.

"I had no idea," said Stephanie Whitby, who shops online regularly and was surprised to learn such a law even existed.

"I felt like it was Christmas all year-round for me because there was no sales tax, that's lots of money I'd been saving."

But fact is, if buying from an out-of-state retailer, either online, by phone, or even through catalog, under Michigan law buyers are responsible for reporting and paying the so-called 6 percent "use tax."

"Whether it be furniture, or art, or whatever the case might be, if it's not taxed when it's purchased from someone out of state, the "use tax" is supposed to be paid here," said Terry Stanton, a spokesperson for the Michigan Department of Treasury.

While it's supposed to be paid, Stanton says the reality is that most people aren't paying it.

"The state will lose in this fiscal year 2014, we estimate about $480 million dollars," he said.

You read it correctly, that's nearly half a billion dollars the state is projected to lose from people not paying the taxes on their online and mail order purchases, according to data from the Department of Treasury.

Conversely, Stanton said last year the state saw roughly 113,000 taxpayers claim a "use tax" on their income taxes, bringing in about $6 million in revenue for the state.

"Michigan has a voluntary tax system and when you make a purchase such as one of these might be, folks need to know they're responsible for paying the tax on it," he said.

Line 23 of the Form MI-1040 Michigan Individual Income Tax Return is where individuals can claim their "use tax."

Stanton says best practice is to save any and all receipts to make filing easier down the road. If not though, the state's MI-1040 Individual Income Tax booklet includes a table to help calculate a probably among owed based on one's income and expenditures. A link to that booklet is at the right of the page.

Some online purchases do already have a sales tax attached if they're bought from retailers like Target or Wal-Mart, stores which have a physical presence in the state as opposed to or

In September 2013, some state lawmakers were pushing for legislation to implement an internet sales tax to fix the issue while allowing for a more level playing field for the "brick-and-mortar_ businesses which have to collect a sales tax.

Those talks have stalled out mostly because any such attempt is at odds with a federal ruling which says a physical presence is required for a retailer to collect a tax.

Tax returns are due April 15, 2014.

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