Your Picasso Can Cost You More Than You Think
Have you purchased artwork, jewelry, furs, or other large ticket items from businesses located outside Illinois and either brought them or had them shipped to you inside the state?
Have you purchased an automobile, boat, RV or aircraft for use in Illinois that you registered outside the state? If you did not pay sales tax to the retailer or individual from whom you made the purchase, you probably have a “use tax” obligation. A use tax compliments the sales tax in that it is imposed on the individual (or business) who purchases the tangible personal property as opposed to the out-of-state retailer or vendor who made the sale. Examples include the following:
- an item of tangible personal property was purchased in another state or country and brought into your home state for use;
- an item of tangible personal property was purchased by subscription, through the internet or from a mail order catalog company, without being charged sales tax; and
- personal property (like furniture) was acquired with the purchase of real estate.
If a seller fails to collect sales tax on the sale of taxable goods, the tax obligation shifts to the purchaser in the form of a use tax. The individual or business must self-assess and pay the use tax to the state where the taxable tangible personal property will be used, consumed, stored or given away.
States like Illinois are aggressively going after individuals to collect use tax plus interest and penalties, which may end up being significantly more than the amount of tax that would have been originally due. Sources for finding potential targets of unpaid tax liabilities include U.S. customs declarations of individuals and of businesses that are making acquisitions on behalf of their clients. Additionally, there may be a general sales and use tax audit of an out-of-state retailer where the auditor picks up names of individuals through the course of the audit. Once the audit is initiated, the states may be able to have an unlimited lookback for untaxed purchases if the taxpayer never filed a use tax return as statute has never expired on that audit period. Typically, once you have been contacted by the state, you are no longer able to participate in amnesty or voluntary disclosure programs which may offer an abatement of penalty and interest or a limited lookback in the case of voluntary disclosure programs.
Beginning January 1, 2011 through October 15, 2011, the State of Illinois has instituted an Illinois Use Tax Amnesty Program which is available to individual taxpayers to remit their outstanding use tax liabilities. This program is available only to individuals and applies to use tax owed on purchases of tangible personal property used in the state of Illinois.
Specifics about the Illinois Use Tax Amnesty
- The Amnesty application period runs from January 1, 2011 through October 15, 2011.
- Amnesty applies to use taxes due for purchases made between June 30, 2004 and prior to January 1, 2011.
- Amnesty is applicable for use tax owed on purchases of tangible personal property from a retailer for use in Illinois.
- Taxpayers cannot participate if they are under audit or have been contacted in writing by the Illinois Department of Revenue concerning Illinois use tax.
- Taxpayers cannot participate if they are a party to a criminal investigation or to any civil or criminal litigation for nonpayment, delinquency or fraud in relation to Illinois use tax.
- If an eligible tax liability is paid in full during the Amnesty period, penalties and interest will be waived.
- Failure to pay all eligible taxes due for the Amnesty period shall invalidate any Amnesty granted.
To participate in the Amnesty program, taxpayers must complete an application for each year that they have a use tax liability. For tax year 2010, taxpayers may report their use tax on their individual income tax return if the amount owed is $600 or less.