Assembly Bill 469 is supposed to “increase awareness of the California use tax and increase compliance.” This bill creates more problems than it solves. AB 469, if passed, will only confuse and intimidate taxpayers into paying taxes they don’t owe.
Under current tax law, individuals and businesses are required to pay use tax (the equivalent of sales tax) on goods purchased out of state.
AB 469 would make it a requirement for individuals to report use tax on their income tax return, and require taxpayers to put a “0” on that line if they believe they do not owe any use tax. This puts taxpayers in a difficult position. Most taxpayers do not know the purpose of use tax, where it applies, or how to report it. Worse yet, they have to sign their return under penalty of perjury.
The worst part of this bill is that for individual purchases of items less than $1,000 dollars, taxpayers are not required to have receipts from which to calculate use tax. Instead, taxpayers are expected to use a “use tax table” to calculate the use tax due as a percentage of their taxable income.
The bill counts on taxpayers to know that they bought an item without paying sales tax, even though they do not have a receipt for that item, and to report use tax according to the tax table formula. This is an inaccurate and dishonest way to calculate use tax.
Under AB 469, taxpayers will have to pay the percentage of their income on the use tax table to protect themselves from understating their use tax. Moreover, the table doesn’t take into account how many items a taxpayer may have purchased without tax; it only requires a flat percentage based on the individual’s taxable income. Everyone in the same income range will be paying the same amount of use tax regardless of how much use tax they actually owe; that sounds like a new income tax, not use tax.
The BOE states it will not punish taxpayers that understate their use tax if they use the tax table. That’s a red herring: The problem with the tax table is that most taxpayers using the income formula will probably overstate their use tax, not understate it.
This bill is supposed to “increase awareness of the use tax,” and thus, get more people to pay the tax. In reality the bill promotes gross inaccuracies in use tax reporting, in an effort to increase use tax revenues without actually helping taxpayers to understand the use tax or apply it appropriately.
The BOE, in its analysis, claims that new revenue will “substantially exceed additional costs,” the analysis ignores the probability that most new reporters will be reporting their use taxes inaccurately. It also ignores the unfair requirement to pay a percentage of taxable income instead of real tax numbers from receipts. The use tax table might bring in more revenue, but it’ll be at the expense of hard working taxpayers who just don’t want to be bothered anymore by the state.