Tax Development Nov 30, 2016
In anticipation of online holiday sales drivers such as Cyber Monday, South Dakota released a statement to its residents reminding them of their obligation to remit use tax on online purchases. Individuals are responsible for remitting use tax at 4.5%, in cases where online retailers are not collecting sales tax, and may be additionally liable for municipal taxes at the rates imposed where the tangible personal property is delivered. Also, when tax is being collected and paid to another state, but at a rate lower than South Dakota’s 4.5% (plus local) tax rate, purchasers are responsible for remitting use tax on the amount they would have paid in South Dakota, less the amount collected at the other state’s lower rate.
The director of the South Dakota Department of Revenue’s Business Tax division stated that residents should be reminded “that tax paid on Internet purchases goes toward schools, law enforcement, and fire services.” The South Dakota Bureau of Finance and Management estimates its annual loss in revenue from unreported use tax at approximately $50 million to $55 million.
While this announcement comes from South Dakota, it represents virtually every state’s viewpoint regarding residents use tax filing obligation relating to online purchases. With online purchasing continuing to grow at a faster pace than in store foot traffic, educating residents is very important to try and enforce compliance.