ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Tuesday, April 30, 1996 TAG: 9604300114
SECTION: VIRGINIA PAGE: C-3 EDITION: METRO
DATELINE: RICHMOND
SOURCE: Associated Press
IF YOU ORDERED from a catalog or through a television shopping network, you should have paid Virginia's Consumer's Use Tax. Bet you didn't know.
Virginia loses millions of dollars every year because an obscure state tax is little understood, seldom paid and difficult to collect.
State income tax forms that are due by Wednesday include Form CU-7 for reporting the Consumer's Use Tax. Residents who shop out of state or buy more than $100 in goods through the mail or from television shopping networks are required to disclose such purchases, which are not subject to the state sales tax, and pay a 4.5 percent ``use'' tax.
But few shoppers know they owe the tax, and fewer still pay it. With little means of enforcement, the use tax operates almost entirely on the honor system.
``Most people don't think about it,'' said Robert Schultz, Virginia's assistant commissioner for tax compliance. ``It is largely up to the honor code. There's no question about it.''
And state figures show the honor code isn't working very well.
Last year, 11,254 people - fewer than one-half of 1 percent of Virginia's 2.7 million income-tax filers - paid the use tax, the state Department of Taxation said. And the number has been dropping. Nearly 4,000 more consumers paid the tax in 1993.
``The average guy is not going to pay it, and he doesn't even know about it,'' said Verenda Smith, government affairs associate for the Federation of Tax Administrators, a national nonprofit group representing state tax agencies.
Michelle Fronheiser of York County, a computer graphics specialist, said she likes shopping by mail for the convenience.
``When I shop out of state, I generally don't get charged a tax,'' Fronheiser said. Does she pay the consumer's use tax?
``Excuse me? You're kidding! I never heard of it.''
She is not alone. Tax and marketing analysts estimate that hundreds of thousands of Virginians use home-shopping services. Nationally, more than half of the adult population shops by mail, direct-mail advocates claim.
The consumer's use tax has been on the books in Virginia since 1966, when the sales tax was adopted.
For decades, the use tax was largely ignored. Home shopping was relatively rare, and Virginia didn't keep track of how many people paid the tax until 1993. Before then, the use tax was not included in state income tax forms. Residents who knew about the tax and were willing to pay it had to ask for a form.
But now, the tax has become more important as home shopping goes global through the Internet and cash-strapped state officials realize the potential for millions of dollars in untapped revenues.
``It's important people understand they owe the tax,'' Smith said. ``There's some serious money being spent overseas and across state lines.''
For Virginia, estimates of potential revenue vary widely. A 1992 study by the Advisory Commission on Intergovernmental Relations put the figure at $60 million a year. The home shopping industry says it's more like $27 million.
Whatever the figure, it is far more than the approximately $500,000 the tax currently generates each year.
There is little the state can do to beef up collections. Unlike the sales tax, which consumers pay at the time of purchase, the use tax has no mandatory collection mechanism.
Unless a mail-order or other out-of-state company has some physical presence - a plant, a warehouse, an outlet store - in Virginia, the state cannot require it to collect a use tax from Virginia customers.
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