With the 2010 holiday shopping season now in the rear view mirror, a move by the state of Illinois has served as a reminder that one of the biggest issues facing the e-commerce industry—internet taxation—certainly isn’t going to disappear from the forefront in 2011.
The state has announced the formation of a new amnesty program for consumers who owe unpaid taxes on past Internet purchases. It is believed to be the first such consumer-focused program ever launched by any state in the country but certainly may not be the last if it proves to be fruitful.
The program will go live officially on January 1st and run through October 15 of next year.
Under the terms of the amnesty offering, Illinois will waive all penalties and interest on payments that consumers make to the state to cover “use” taxes on purchases made between June of 2004 and this past December from internet retailers, catalog companies and any other merchants that did not collect sales taxes on those transactions.
Use taxes, which the Illinois program is focused on, are not often mentioned in the larger debate over internet taxation and most consumers are neither aware of them or pay them at all. They’re typically levied by states like Illinois IN LIEU of traditional sales taxes and they get their name from the fact that individuals are expected to pay, in any given state, for the right to use products they buy from web and catalog merchants that do not collect sales taxes on purchases.
Though they go by a different moniker, use taxes still boil down to a form of internet taxation much like we’ve seen in places like Colorado and North Carolina. While the state argues that the Illinois’ Use Tax Amnesty program is an effort to raise awareness of consumers’ use-tax responsibility, the broader goal of the program is to recoup some of the estimated $150 million in uncollected tax revenue out there every year.
Several other states that take part in the Streamlined Sales Tax Project, which we have chronicled a few times before, have previously offered amnesty programs to retailers for uncollected sales taxes in the past. Illinois, however, is the first state to target consumers with an amnesty program of this type.
It’s not the lone step the state is taking to address use/sales tax awareness. Taking a cue from several other states, Illinois is also going to require taxpayers, beginning this year, to estimate their own use tax liability on their state tax returns. State residents will have a choice when filing returns this year to either use a template worksheet to roughly calculate their liability or choose to pay roughly $3 for every $10,000 of adjusted gross income.
It’s been fairly quiet on the internet taxation front lately but this news out of Illinois is sure to get the debate fired up once again, particularly if we see more states rolling out similar tax proposals in the New Year.
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