Another Tax Geek asked me whether I pay Use Tax on my iTunes purchases (you can answer him, too, by voting in our poll in the sidebar). I do not. I started to reply in the comments and felt that my comment was a bit wordy (as I tend to be) and I felt that it really deserved a separate reply.
To be clear, I understand that I am required to pay tax on my iTunes. Mine is not an argument about defiance or the parity of the tax. It’s more about realism, reporting and administration.
I went back over my bank statements for the year to date, and looking at them, I can’t think of item that I personally purchase over the internet that was not already taxed that would not be exempt in Pennsylvania – except for iTunes. Not one. I’ve bought plants, clothes, books and furniture – and each of them were taxed when appropriate (PA does not tax clothing).
And when we recently bought our car after its lease was over (though not an internet purchase), we dutifully mailed in our check for taxes.
So this is not about the idea of sales or use tax.
I should be filing for those iTunes downloads. But filing for them – and paying the tax – is a crazy exercise in wasted time and administrative burden. The Use Tax Return in PA is not a consolidated, annual return; it is required to be filed by the 20th day after each MONTH in which a purchase is made. Oh yeah. Each month.
So, let’s do the math. I went through my bank statements and calculated how many returns I would be required to file and how much money I would owe for 2007. Here are the results:
June
Total purchases: $3.95
Total tax owed for June: $ .28
May
Total purchases: $16.83
Total tax owed for May $1.18
April
Total purchases: $ .99
Total tax owed for April $ .07
March
No purchases
Total tax owed for March 0
February
Total purchases $8.84
Total tax owed for February $.62
January
Total purchases $4.11
Total tax owed for January: $.29
There you have it. To pay tax on my iTunes, I would have to file six different returns to date – and paid the princely sum of a total of $2.44 (with six different checks).
How is that remotely efficient – on my end or on the end of Revenue?
If I had filed, I would have written six checks. And I would have paid $2.52 for postage – more than the total tax owed – to file those returns.
Also, in addition to my own time to prepare returns, as a taxpayer I would have paid to have a Revenue employee process six different returns – for a gross total of $2.44. Not even mathematically possible to break even under those circumstances.
Interestingly, Revenue allows taxpayers who owe less than $1 for personal income tax to skip payment; there is a similar rule for federal returns. These rules make sense.
I don’t see any such rule for Pennsylvania Use Tax (I poked around and poked around, if it exists, they sure don’t make it clear). Using that rule, I would have only been subject to tax in May.
For the record, I don’t advocate tax avoidance. I don’t disagree that sales and use taxes are to be paid. But the rules should make sense. A rule that requires a taxpayer to file a return and pay tax each month for between 7 cents and $1.18 (in my case) just make taxpayers crazy – and it would clearly overwhelm Revenue. If you want to encourage compliance, why not make the rules sensible?
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