Souvenir Buyers May Be Inadvertent Tax Outlaws

My name is Christopher Reynolds and I am, according to the state Board of Equalization, a tax outlaw. In all likelihood, you are too.

How so? We leave the state on vacation or business. In another state or nation, we buy postcards or pants or paintings. We pay the local sales tax (if there is any), and we bring the stuff home. And we assume that all scores are settled.

But under a long-overlooked law that’s been on the books since 1935, the state of California is entitled to a piece of these purchases. The law is the Consumer Use Tax, and it was written during the Depression amid complaints that California retailers were losing business to competitors who shipped goods from states that didn’t charge sales tax.

The use tax still applies to California residents, whether they’re leaving the state for work or play. The Board of Equalization is in charge of enforcing the law, but as the agency’s own officials confess, collecting the tax wouldn’t be worth the trouble.

The law is supposed to work this way: On trips outside California but inside the U.S., we’re supposed to pay the difference between other localities’ sales taxes and our own. So if you leave Los Angeles County (where state and local sales taxes add up to 8.25%) and buy a $20 pair of mittens in Oregon (where there is no sales tax), you owe $1.65 on your return. (Delaware, Montana, New Hampshire and Alaska also have no statewide sales tax, although some Alaskan localities impose sales taxes, the Chicago-based Sales Tax Institute reports.)

If you leave L.A., buy a $10 T-shirt in Las Vegas (Clark County, Nev., sales tax: 7.25%) and return with it, you owe 10 cents. (And no, if you buy things in a state with higher sales taxes than California’s, you’re not entitled to anything from anybody.)

State officials concede this law is widely ignored. Even the California Taxpayers Assn., the leading anti-tax voice in the state, says it’s too busy fighting other battles to worry much about this problem.

Why doesn’t somebody do something?

In 1990, somebody did. But in many ways, it made these murky waters murkier. That year, California lawmakers approved legislation specifying that residents who buy things outside the U.S. do not owe these “use taxes” on the first $400 we spend--but beyond $400, we do owe. (In the case of foreign purchases, we get no credit for paying any local sales taxes. For U.S. purchases, there’s no $400 minimum.)

Thus, besides any duty you may owe the U.S. Customs Service, you owe the state of California as well. Thus if you spend $500 on a rug in Turkey, besides duty, you also owe California $8.25 (if you live in a place with 8.25% sales tax).

And unlike domestic travelers, international travelers can be scrutinized in a cost-effective way. Peter Horton, a business tax specialist for the Board of Equalization, said staffers regularly review information that travelers provide to U.S. Customs Service officials. If you report purchases of more than $400 on your customs forms, state officials may follow up by sending you a letter about your debt.

In the last decade, the state has collected $5.4 million in use taxes on purchases abroad by California residents, Board of Equalization records show. Horton said that the payments average $250 per person, which works out to 2,160 travelers per year who pay the tax.

How many don’t? There’s no telling.

Horton suspects that most of those taxpaying travelers wrote their checks only after receiving letters from the Board of Equalization. Agency officials won’t say how many customs declarations are reviewed. But if you disclose spending more than $400 on a customs form and you get a follow-up letter from the Board of Equalization, it’s time to respond, Horton said.

If there’s no response in such cases, they bill you, Horton said. “When you get a billing, you kind of want to pay attention to it--because if you don’t, they could ultimately [attach a] lien [to] property and such.”

Horton could not say how often Californians face penalties for failing to pay use taxes on foreign purchases. But the state has dunned Californians for use-tax payments after high-profile purchases. In 1991, for instance, the Board of Equalization went after Irvine Co. chairman Donald L. Bren for the $20 million in art purchases he made in New York in the mid-1980s. The tax bill included $1.2 million in use taxes and $671,872 in interest.

Still, when it comes to most U.S. purchases outside California, it’s basically up to us travelers to volunteer payment.

The Board of Equalization, which collected $19 billion in sales and use taxes in the 1998-99 fiscal year, says it has no way of knowing how much California-based travelers ought to be paying in taxes on out-of-state purchases and has no plans to look any closer.

Many reformers have called for simplification and increased uniformity of tax laws from state to state. But that, said Ron Roach, spokesman for the California Taxpayers Assn., “may be mission impossible.”

If your souvenir shelf and your conscience are bothering you, here’s the good news.

In March, the state Board of Equalization, telephone (800) 400-7115, Internet https://www.boe.ca.gov, printed a new pamphlet and form explaining the use tax. Finding it is no easy feat. To reach the information and form via the Internet, access the board’s site; click on “forms and publications,” then “sales and use tax”; next, click on “publications”; finally, mark Form 79-B.

Or you could merely calculate what you think you owe, then send a check with brief cover letter to: Board of Equalization, Centralized Collection Sections MIC 95, P.O. Box 942879, Sacramento, CA 94279-0095.

Of course, many of you will choose instead to pretend that you never read this column. But wouldn’t that be wrong?

CTA’s Roach, who acknowledges that he has no prudent alternative, said: “Follow the law and pay what you owe. . . . Basically, if everybody paid what they really owed, we’d have more revenue and be able to lower rates.”

Besides, Roach said, “it would probably cause people at the Board of Equalization to fall out of their chairs as all these checks come in.”

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Christopher Reynolds welcomes comments and suggestions, but cannot respond individually to letters and calls. Write Travel Insider, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053, or send e-mail to chris.reynolds@latimes.com.