SACRAMENTO, Calif. – On Wednesday, Betty T. Yee, chair of the Board of Equalization, announced a new BOE estimate of $1.145 billion dollars in use tax owed by Californians that goes unpaid each year.

Use tax is owed when a consumer makes a purchase from an out-of-state retailer who is not required to collect California tax.

That means online, catalog and other out-of-state purchases are not tax-free, as some consumers believe.

When the out-of-state retailer does not collect the tax, the consumer is responsible to make the use tax payment directly to the state.

The use tax owed is the same as the sales tax that would be due if the purchase were made from an in-state retailer.

With online and catalog sales up for the holiday season, Yee reminds consumers to save receipts, calculate the use tax due and make the payment to the state.

“The dollars lost to California in unpaid use tax significantly impact the state’s publicly funded programs and affect all Californians,” said Yee.

Sales tax applies to most in-state retail purchases of tangible personal property.

Online or catalog retailers are not required to collect tax unless they have a physical presence in California. The consumer is required to pay use tax when the out-of-state retailer does not collect tax.

The sales and use tax rate varies in California from 8.25 percent to 10.75 percent, depending on location.

The most convenient way to pay the use tax to the BOE is on the Franchise Tax Board income tax return by noting the amount owed on the line marked “Use Tax” and make the payment along with any income taxes that are due.

Consumers may also file directly with the BOE as a use tax consumer by filling out form BOE 79-B: www.boe.ca.gov/pdf/pub79b.pdf.

 

The updated 2009-10 BOE use tax estimate, released in a report titled Electronic Commerce and Mail Order Sales, shows the unpaid sales and use tax liability owed by the average California household is $61 per year and $102 per year for each California business.

California use tax has been the law since 1935. It was established to eliminate the price advantage out of state retailers would have over California businesses that collect and send sales tax to the BOE.

The $1.145 billion dollars in unpaid sales and use tax associated with electronic commerce and mail order sales that are not voluntarily paid is a significant component of the sales and use tax gap, the difference between taxes owed and taxes paid.

For more information on other taxes and fees in California, visit www.taxes.ca.gov.