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Use Tax Look-up Tables: What Is the Logic Behind the Numbers?

author photo of Annette Nellen

In preparing state income tax returns for 2014, many individuals will see a line on that form for paying their use tax. The majority of states have such a line. A few states take that good idea one step further and make it easy to put a number on that line by using a "look-up" table. The table shows an estimate of use tax based on the individual's income. There might also be an adjustment for items purchased at a cost over a specified amount, such as $1,000 used in California.

What data and assumptions go into creating these look-up tables?  I have no idea and cannot find anything about this.  So, I decided to look at the look-up tables for three states (see below) to see if anything can be gained from the variations. The figures for Kentucky are higher than for California and New York? Why?

Here are factors I think would be considered:

  • Data about online and mail order sales by individuals for which sales tax is not charged.
  • Whether there are neighboring states without sales tax or a much lower sales tax such that people may be inclined to make purchases there.
  • Whether large web and mail order vendors, such as Amazon.com and collect sales tax from residents.
  • Whether there is an affiliate nexus law.
California Kentucky New York
State sales tax rate: 7.5% 6.0% 4.0%
Use tax look up table base: State AGI State AGI Federal AGI
Look up table amounts for these AGI levels:
$10,000 $5 $4 $9
$25,000 $9 $20 $18
$40,000 $16 $28 $30
$70,000 $26 $60 $45
$100,000 $39 $70 $60
$150,000 $57 AGI x 0.08% $80
$190,000 $66 $96
$200,000 AGI x 0.035% $96
Over $200,000 AGI x 0.049%(or $250 if less)
Adjustments: Add use tax on items costing $1,000 or more.
Reference: BOE website. Instructions page 12. Instructions page 23.
NCSL estimated uncollected use tax on all remote sales for 2012 (business and individual) $4.2 billion $224 million $1.8 billion
Population per US Census Bureau (2014) 38.8 million 4.4 million 19.7 million
Does Amazon.com collect sales tax in the state? Yes Yes Yes
Affiliate nexus law? Yes No Yes

 

So, why the variations in look-up table amounts among these three states?  Do state tax agencies share their formulas among themselves? Why not make the assumptions and formula public?

What do you think? Your questions and comments are welcomed.

Other recent “Sales Tax Policy - Tales & Trends” posts by Annette Nellen, CPA, ESQ:

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