The Virginian-Pilot
                             THE VIRGINIAN-PILOT 
              Copyright (c) 1996, Landmark Communications, Inc.

DATE: Tuesday, April 30, 1996                TAG: 9604300355
SECTION: LOCAL                    PAGE: B8   EDITION: FINAL 
DATELINE: RICHMOND                           LENGTH: Medium:   54 lines


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 pay it. With little means of enforcement, the use tax operates 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.''

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. The number has been dropping.

``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.

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.

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 the potential revenue is more like $27 million.

Whatever the figure, it is far more than the approximately $500,000 the tax currently generates each year. by CNB