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Funding Woes and the California Use Tax

California is in the midst of a horrible budget crisis. The Governor decided to cut 10% across the board, resulting in huge cuts to public education. I read somewhere that the state looses a couple of billion dollars in revenue a year due to people ignoring the California Use Tax. These are taxes we're supposed to pay on out of state purchases, like most Internet purchases from sites like Amazon.

In previous years it was pretty easy to ignore the California Use Tax while preparing your taxes with Turbo Tax. I vaguely remember it as a checkbox in some page containing other checkboxes. The explanation was a bit obscure as well. If you were supposed to pay taxes on your Internet purchases, you would have thought he software would have made this requirement explicit. It looked so tentative in the page, that it was too easy to completely ignore. Reading more about it you find out that you could always pay these taxes later by contacting the California Equalization Board, which could be why the Turbo Tax designers felt they did not have to present this tax in more explicit terms.

But that's all changed this year. I used the Premier version of Turbo Tax for the Mac and this time, the California Use Tax was presented clearly, in its own page with an adequate description of what it is. Much, much better.

For a few years now, since I found out about this tax, I've been reporting it. This is how I do it: during the year I save all my email receipts of online purchases in a special mailbox. At tax preparation time, I scan all these emails for the given year, add up the total and enter it into the box. Easy.

The tax impact is your local sales tax of the total spent that year. In San Mateo County it's 8.25% and the resulting difference in my taxes is pretty small.

It will be interesting to find out if more people start paying this tax now that Turbo Tax made the interface more explicit...

BTW, Turbo Tax gets better very year. Now, if only Quicken for Mac was half decent. I've wondered for a while why Apple did not start their own financial application. I assume they're still hoping Intuit will come through with a good effort on the Mac.


  1. I had the same experience - didn't realize I owed this tax in previous years, and ran into it in Turbo Tax (deluxe).

    It's clear we owe it - for that $2,300 TV I got, for all those Amazone gifts and DVD's - money I had thought was just 'saved' by buying out of state where I was not charged sales tax.

    But it's also clear that perhaps 99% of people don't pay this tax - leaving it unfair, a 'tax on the honest people'.

    Is the improvement to TurboTax going to increase the number of intentional tax cheaters? I suspect it will.

    It'd be nice to see some approach found to either make everyone pay fairly, or no one, not just the 'honest people'.


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