State hopes to push use-tax burden to consumers with 2010 tax form

Filed under Taxes

By Claire Hoffman

Medill News Service

Illinois is turning to consumers for help collecting use taxes.

The Illinois Department of Revenue is asking consumers to calculate and remit use taxes on goods purchased from out-of-state retailers.

— April 18 may have been more dismal than usual for some Illinois taxpayers due to a new line on the state income tax form.

Beginning with the 2010 tax year, Illinois Form IL-1040 specifically required individuals to report any use tax not paid on purchases made online or outside Illinois.

Additionally, the state’s recently enacted tax amnesty program asks residents to report any unpaid use tax incurred from July 2004 through December 2010.  The new push to collect use taxes directly from individuals comes as the state contends with a budget deficit and has been under pressure to reduce the tax burden on businesses.

Most owe $3 per $10,000 in income

If a merchant does not charge at least 6.25 percent sales tax, the consumer is responsible for reporting and paying the tax difference to the state, experts said.

The Illinois Department of Revenue estimates the average resident owes $3 in amnesty use tax for every $10,000 of adjusted gross income. However, an avid online shopper or frequent traveler could owe the state more than $600 in use taxes.

The use tax has been in the news since March when the Illinois legislature approved in a bill requiring all Internet retailers with affiliates in the state to collect and remit a 6.25 percent use tax. As soon as Congress passed the bill, online merchants Amazon and Overstock said they would sever ties with Illinois affiliates, such as CouponCabin and FatWallet.

FatWallet relocates to Wisconsin

As a result, FatWallet, which had been based in Rockton, Ill., has relocated to Wisconsin. If had remained in Illinois, the company would have lost nearly 30 percent of its revenue, said Brent Shelton, public relations director. “Our promise to consumers is to have the best offering of coupons and discounts available online,” Shelton said. “In order to do that, we had to move to prevent losing those merchant offerings that we publish.”

While the amended IL-1040 form was a surprise to many taxpayers, the state’s use tax dates back to 1955. Since publicizing the amnesty program, the Illinois Department of Revenue expects to see compliance this year, said Susan Hofer, spokesperson.

“Most tax collection is based on the honesty of our citizens,” Hofer said. “We truly believe that if people recognize there’s a tax that they didn’t even know about, they’re going to say, ‘I can afford that three or five dollars.'”

Hofer said the state currently receives an average of $4 million to $6 million annually in use taxes, but forgoes about $150 million to $170 million in uncollected use tax. Hofer declined to comment on how the department plans to enforce the law. “We’re not going to get the full $150 million,” Hofer said. “But what we do get will put us that much more in line budget-wise.”

But taxpayers acknowledged compliance will be a problem.

Compliance is an issue

“I can’t imagine going back to report my purchases,” said Erin Moore, a 26-year-old resident of the city’s Rogers Park neighborhood. “I think it’s completely unrealistic.”

Chip Barnes, manager of Moto Restaurant in Chicago’s Fulton Market district, said he was unaware that a use tax existed and has no record of his online purchase history.

“I could see that putting a pretty good size dent in my income,” Barnes said. “I only shop online three to four times a year, but I buy a fair amount of stuff.”

Other consumers said the use tax is unfair to Illinois residents who are already taxed at comparatively high levels. In February, Illinois had the eighth highest combined state and average local tax rate at 8.22 percent, experts said.

“It’s going to be a pain, but it doesn’t stop me from shopping out of state or online,” said Julie Martinez, co-owner of That’s Amore Florist Ltd. in Chicago’s Lakeview neighborhood. “If you can get a better deal crossing state lines, go for it,” Martinez said.

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