SOUTH CAROLINA DEPARTMENT OF REVENUE

Use tax due on out-of-state, Internet and catalog purchases

Contrary to popular opinion, catalog and Internet sales are subject to sales and use tax. Making a purchase outside of South Carolina’s borders, whether done physically or electronically, may not exempt you from paying the state’s sales tax.

Merchandise bought outside of South Carolina for use or storage in this state is subject to the "use" tax if an equal amount of sales tax was not paid to another state at the time of purchase. This applies to catalog and Internet purchases as well.

The use tax, first cousin to the state’s sales tax, has been around since the sales tax was adopted in 1951. However, it remains one of the state’s most under-reported taxes. The South Carolina Department of Revenue estimates that the state loses $40 million annually from unreported use tax. The revenue loss is critical because all of the use tax, like the sales tax, is earmarked for South Carolina’s education programs. The statewide use tax is 5%, but residents in counties with a local option or one of the special local taxes may have to pay an additional 1% or 2% use tax.

The Department of Revenue has stepped up its use tax education initiative for several reasons. With the boom in catalog and Internet sales, many electronic shoppers are unaware they may have a tax obligation when they make purchases over the Internet if the tax is not collected by the retailer at the time of the sale. South Carolina retailers also have encouraged the agency to enhance its collection of the use tax to eliminate the unfair advantage out-of-statemerchants have over the state’s retailers who must collect the sales tax.

"By not collecting the use tax, these merchants have a 5% edge on our local businesses," said South Carolina Department of Revenue Director Elizabeth Carpentier. "We don’t think that’s fair and neither do the South Carolina businesses who have contacted us encouraging our enforcement of the use tax."

Many out-of-state retailers have taken advantage of the Department of Revenue’s voluntary registration program. These companies collect the tax at the time of sale. South Carolina also participates in a program with 11 other Southeastern states to exchange sales information for collecting the use tax.

The information exchanged between the states may mean South Carolina shoppers who did not pay a sales or use tax on out-of-state purchases could receive a bill from the Department of Revenue. On large item purchases the tax obligation could be substantial.

Residents can report the use tax by downloading form UT-3 from the Department of Revenue website at www.sctax.org or by using the form included in the back of the 1999 income tax workbook. Ms. Carpentier notes that although the form includes a worksheet to help taxpayers compute the tax information, it is not necessary to disclose the date of purchase, a description of the property purchased or the individual purchase amounts on the return. Only the total of the purchase prices is necessary.

The Department of Revenue also is developing plans to include a line on future state income tax returns to make it easier to report the use tax.