Arizona Use Tax for Online Purchases

Some Arizona taxpayers may get a surprise while preparing taxes this year. A new line has been added to our income tax form which requires you to state the amount of your online purchases and you are expected to pay use tax for online purchases.

Arizona has decided to get serious with enforcing a use tax which they state has been in effect for almost 60 years. The 2011 Arizona Resident Personal Income Tax Instruction Booklet informs us:

Arizona’s use tax has been part of our tax laws since 1955.  Every state with a sales tax also has a use tax. When Arizona shoppers buy from out-of-state sellers who do not collect tax, this puts in-state sellers at a disadvantage. The use tax puts all retailers on a level playing field.

I read if you put $0 on that line it will trigger an audit, but I found this Arizona Department of Revenue Use Tax Fact Sheet which states the following:

If a taxpayer reports zero use tax on their income tax return will an audit be triggered?

The department is prohibited by law from discussing its audit selection criteria. However, the use tax is not a new tax. The law change simply added a line on the individual income tax return to make the use tax more visible and easier for individuals to report the tax.

This is the statute which puts the liability on the purchaser:

 42-5155. Levy of tax; tax rate; purchaser’s liability

(Caution: 1998 Prop. 105 may apply)

A. There is levied and imposed an excise tax on the storage, use or consumption in this state of tangible personal property purchased from a retailer or utility business, as a percentage of the sales price. A manufactured building purchased outside this state and set up in this state is subject to tax under this section and in this case the percentage is sixty-five per cent of the sales price.

B. The tax imposed by this section applies to any purchaser which purchased tangible personal property for resale but subsequently uses or consumes the property.

C. The tax rate shall equal the rate of tax prescribed by section 42-5010, subsection A as applied to retailers and utility businesses according to the respective classification under articles 1 and 2 of this chapter for the same type of transaction or business activity.

D. In addition to the rate prescribed by subsection C of this section, if approved by the qualified electors voting at a statewide general election, an additional rate increment of six-tenths of one per cent is imposed and shall be collected through June 30, 2021. The taxpayer shall pay taxes pursuant to this subsection at the same time and in the same manner as under subsection C of this section. The department shall separately account for the revenues collected with respect to the rate imposed pursuant to this subsection, and the state treasurer shall pay all of those revenues in the manner prescribed by section 42-5029, subsection E.

E. Every person storing, using or consuming in this state tangible personal property purchased from a retailer or utility business is liable for the tax. The person’s liability is not extinguished until the tax has been paid to this state.

F. A receipt from a retailer or utility business that maintains a place of business in this state or from a retailer or utility business that is authorized by the department to collect the tax, under such rules as it may prescribe, and that is for the purposes of this article regarded as a retailer or utility business maintaining a place of business in this state, given to the purchaser as provided in section 42-5161 is sufficient to relieve the purchaser from further liability for the tax to which the receipt refers.

For a law that has been in effect for 57 years, it is interesting that Arizona is just now beginning to attempt to enforce it.

Here are some bullet points from Brochure 610A “Arizona Use Tax for Individual Income Taxpayers from the Arizona Department of Revenue:

  • Individuals are liable for use tax
  • Purchases made online are taxable if used or consumed in Arizona
  • Casual sales between individuals not subject to use tax
  • Use tax is required if you purchase a vehicle out of state (unless you can prove you paid taxes to the state where it was purchased)
  • Use tax does not apply to prescription medicines, most food items, sales for resale (you can find a list of items the sale of which are not subject to use tax in Publication 610, Use Tax)
  • You may be required to pay penalties and interest if you do not pay the use tax due

For me personally, I tend to buy online because of the ease in shopping.  I have grown very fond of Amazon, that is for sure.  It doesn’t matter what I need or want, I can find it online.  Gone are the days of going from store to store trying to find an item.  I can still remember back in the late 80s trying to find a used book.  In fact, it was this book: Sidetracked Home Executives(TM): From Pigpen to Paradise.  At that time, the book was out of print and I called every used bookstore in the Phoenix area, trying to locate a copy.  It took a lot of time and effort, and many bookstores told me I would need to come to the store and look for the book myself!   I remember how exciting it was to learn about, and the need to go on phone call book hunts was over.  Nowadays, since I live so far away from the city, it’s almost always cheaper to order online just for the price of gasoline I’m saving by not having to drive.

Sources for writing this post:
Arizona Capitol Times July 6, 2011 Edition
Arizona State Legislature Statute 42-5155
Publication 610 Use Tax
Publication 610A Arizona Use Tax for Individual Income Taxpayers

Are you required to pay use tax in your state? How do you track your online expenses?


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