Ohio Joins Other States Trying to Capture Lost Revenue

Millions of Ohioans have long neglected to pay sales taxes on mail-order goods, and the state government has let them get away with it. But this year is different. As Ohioans hunch over state income forms with an April 15th deadline, they’re noticing a new line — one that asks how much they spent on untaxed Internet and mail catalogue purchases last year and tells them to pay the five percent state sales tax on the total.

Ohio is just the latest of 16 states trying to collect what they consider “lost” tax revenue. Experts estimate that states are missing out on at least $5 billion in sales tax money every year, because out-of-state internet retailers rarely charge sales tax.Ohioestimates it alone is losing $211 million annually.

While Congress ponders whether to force e-tailers to collect sales taxes and send the money to individual states, the states are taking matters into their own hands, enforcing old laws that let them pressure customers for the money.

“This year, we’re just hoping to educate them,” says Gary Gudmundson, spokesman for the Ohio Department of Taxation. The agency is hinting that it won’t punish taxpayers who make a “good faith effort” to estimate their untaxed purchases and pay up.

“We’re aware that, being the first year, taxpayers didn’t have the opportunity to keep track of their purchases,” says Tax Commissioner Tom Zaino. “We’ll adjust our expectations of taxpayers accordingly.”

While Ohio is officially in a stage of voluntary compliance, tax officials don’t want that nice guy approach to go on forever. They are contacting major e-tailers and catalogue salescompanies across the country, asking for lists of their Ohio customers. Those customers are being sent letters telling them to pay up. If they refuse, tax officials are threatening them with adding two things to their tax bill — a 15% penalty plus interest.”It’s the law. They do owe the tax. We’re gathering the information legitimately and feel it’s entirely appropriate,” says Gudmundson.

It’s an invasion of privacy, cries the Ohio Taxpayers Association. The anti-tax group wants the 60-year-old law on mail-order sales to be wiped out, not enforced. “We’re afraid it’s going to cost more to enforce the tax law than the money they actually bring in,” says OTA Director Scott Pullins.

Tax officials here admit they probably won’t collect much money this first year of the crackdown, probably just $2 million. They have a list of how much other states have collected, and the amounts are dismally low. Some examples — Maine: $1.5 million. Illinois: $208,000. Missouri: $29,000.

Still, tax officials in the 16 crackdown states hope the tax payments will soar as taxpayers make more purchases via the Internet and learn about their obligation to pay up.

Ohio is under pressure to collect as many tax dollars as possible. First, there’s the slumping economy that has prompted Republican Gov. Bob Taft to propose only status quo budgets or actual cuts in dozens of state programs over the next two years. Second, the Ohio Supreme Court has twice ordered legislators to totally revamp the way the state pays for schools and pump more state dollars into the poorest school districts.

Since majority Republicans (and even some minority Democrats) don’t want to propose an unpopular tax increase, many legislators see the tax crackdown on catalogue and Internet purchases as one source of badly-needed cash that won’t rile up voters too much.

Ohio State Senator Bruce Johnson (R-Columbus) says “I think most people would say ‘Don’t raise my taxes because you don’t want to collect the taxes that are already due.”