Taxpayers have confessed to owing $1.5 million to the state in sales taxes they didn’t pay on goods purchased over the Internet, via catalogues or over the border after the Maine Revenue Service sent out 90,000 letters reminding them of their civic duty.
Of that amount, only $46,000 has been paid so far, but now that they’ve told the Maine Revenue Service, the money is expected to come in.
Errol Dearborn, director of the compliance division at Maine Revenue, said the state had no inside knowledge that certain individuals owed the money, but picked taxpayers in several target groups, including people in higher income brackets and businesses that have paid withholding but no sales taxes.
“We’re certainly not accusing anybody of not paying what they’re supposed to,” Dearborn said, but rather asking them “to make things right if need be. That’s not to say, of course, that we know who we’re talking about in this thing.”
Along with the 90,000 letters that started going out on July 6, the Maine Revenue Service also is running TV ads.
The commercial goes something like this: An unaware Mainer exclaims, “I never knew we had to pay taxes on things we bought out of state.” Once apparently enlightened by their accountant that they owe what’s called a use tax, the scofflaw says, “We’re going to do the right thing.”
The use tax is the technical term for the tax people are supposed to pay when no sales tax has been charged. All states that have a sales tax also impose a use tax at the same rate. In Maine it is 5 percent.
The carrot Maine is offering to get people to pay up now is they are asked to report the taxes they haven’t paid for the last six years, but then are required to pay only for the highest three. That amnesty runs through the end of this year.
As the commercial says: “No penalties and no interest payments? We’d be crazy not to.”
The Legislature approved the Maine Use Tax Compliance Program as part of this year’s supplemental budget. It allocated $240,000 for the letters and ads and expected to get back $1.3 million. With more than 50 use tax returns already filled in and $1.5 million reported, the program is exceeding expectations.
Maine currently collects $78 million annually in use taxes, largely from businesses who buy products for use in their operation from out of state. The Maine Revenue Service cites a federal study that estimates another $30 to $100 million goes uncollected, on everything from Ebay auction items to computers purchased over the Internet.
Companies that sell over the Internet or through catalogues are required to charge a Maine sales tax if they also have stores in the state, but those without a business presence don’t have to.
If Maine residents pay a sales tax to another state on a good purchased, they do not owe a use tax here unless the sales tax paid is less than the 5 percent Maine charges.
Dearborn said Maine appears to be the first state doing such a comprehensive outreach and amnesty program to capture back sales tax revenue.
“To our knowledge, nobody has done anything like this before,” he said.
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