MA Residents - No more FREE lunch (taxes on your online purchases too)

[NYCfixie]

Apparently MA was not happy enough with making PayPal send residents 1099-K forms for accepting payments on your ebay/craigslist/etc. sales so that you have to pay tax on the profit.

It appears that MA also wants you to pay taxes for your online purchases via annual tax filing. I was filling out my accountant's tax organizer last night and MA wants you to factor your online purchases and pay use tax on them or just agree to pay use tax on 1% of your salary (or AGI - I will find out more later today when I meet with my accountant) which they are assuming is a fair amount for all.

For better or worse Amazon already charges tax on purchases sent to MA, all clothing less than $175 for an individual item is not taxed, and most major online retailers already have a presence in MA so take that into account if/when you factor how much you owe. And remember, if you cannot prove that a person collected tax from you, you must pay tax on that purchase (e.x. think of all the stuff you bought here and paid for using PayPal).

I know that we legally have to pay tax on all those purchases but it was a nice bonus to not have to pay them while it lasted. That probably means it is no longer worth it to purchase from overseas when you consider the import duty you pay immediately and the taxes you will pay at filing time. Also, USA based mail order may not be worth it anymore.


So, pay your sales/use tax or move to one of the 5 states that does not have sales tax: Alaska, Delaware, Montana, New Hampshire, Oregon

I guess Tax-achusetts is a real thing.

[MattTuck]

So, pay your sales/use tax or move to one of the 5 states that does not have sales tax: Alaska, Delaware, Montana, New Hampshire, Oregon

I guess Tax-achusetts is a real thing.


Yeah, baby!!

Of course, property taxes are killer.

[unterhausen]

I'm not sure I understand the OP. So you have to track your online purchases or pay 1% AGP? That's ridiculous. There is no way I spent 1% on non-taxed online purchases. I suppose I can reverse engineer what I spent online from paypal.

Pennsylvania is known to ding businesses for not paying sales tax, but the mechanism they use to discover it is through deductions.

[4Rings6Stars]

As far as I know nothing has changed re. mass sales / use tax. It has always been the law that you must pay sales tax on all qualifying purchases. The 1% if income you’re talking about is the “safe harbor” option they give you to estimate if you don’t know the actual amount of untaxed purchases. Just say no the question of if you had any untaxed out of state or online purchases if you don’t want to pay MA tax on them. Or suck it up and pay the tax that is due.

(I’m a cpa in MA)

[NYCfixie]

As far as I know nothing has changed re. mass sales / use tax. It has always been the law that you must pay sales tax on all qualifying purchases. The 1% if income you’re talking about is the “safe harbor” option they give you to estimate if you don’t know the actual amount of untaxed purchases. Just say no the question of if you had any untaxed out of state or online purchases if you don’t want to pay MA tax on them. Or suck it up and pay the tax that is due.

(I’m a cpa in MA)

It was the first time it appeared on my accountant's tax organizer/planner so I am assuming that MA has stepped up enforcement (only my second tax year in MA) or too many of their clients are getting dinged on it so they are trying to be helpful. I know this is nothing new about paying the taxes but was surprised that it was made so obvious this year.

I just exported a quicken report (I pay for everything by credit card and track in Quicken), deleted all local purchases, deleted all online purchases from companies who had local presence, removed clothing under $175, and the totaled it. Less than 1% of my AGI.

[Mark McM]

I'm not sure I understand the OP. So you have to track your online purchases or pay 1% AGP? That's ridiculous. There is no way I spent 1% on non-taxed online purchases. I suppose I can reverse engineer what I spent online from paypal.

I'm not sure why you think it is ridiculous, and in fact, there is no new tax or record keeping requirement. What we commonly refer to as "sales tax" is actually a use tax, and residents have been required to pay it on many of their purchases for decades (regardless of where the purchases were made). For in-state purchases, retailers are given the burden of collecting this tax and keeping records, but for out-of-state purchases, the onus has always been on the buyer. And there has always been a line item for this on tax returns forms (at least here in Massachusetts, and likely in other states as well).

As 4Rings6Stars has noted, the only new thing is the introduction of the "safe harbor" amount (and it isn't that new - it has been around for a few years now). For those residents who choose not to keep track of their out-of-state purchases, they can instead choose to pay an amount that is a percentage of their income (if the resident did not make any out-of-state purchases for which the use tax was not collected, then they do not have to pay the "safe harbor' amount). In this way, "safe harbor" use tax amount is somewhat analogous to the standard deduction, which can optionally be used by taxpayers who do not want to itemize their deductions.

[Bruce K]

The only PIA part is valuing your eBay / online sales.

Purchase price, less depreciation vs selling price? How else would you determine market valuation to calculate profit (and pay a tax) or loss (and, presumably, get a deduction)?

BK

[NYCfixie]

The only PIA part is valuing your eBay / online sales.

Purchase price, less depreciation vs selling price? How else would you determine market valuation to calculate profit (and pay a tax) or loss (and, presumably, get a deduction)?

BK

For online sales, do not sell to others in the same state you live in because then the onus is on them to pay the tax to their state, rather than you to collect it for your state.

When dealing with the 1099-k I got from PayPal, I just did a simple calculation of what I paid - what I sold it for because that almost always comes out at a loss once you factor costs (i.e. fees, shipping). I would not waste the time on depreciation because I doubt the IRS or state governments have depreciation tables for bikes and parts to use as guidance and we are not talking about that much money.

I am going to ask my accountant but I am not sure it is worth trying to take a deduction for such a small loss (even if you have to pay tax on a profit) because to me it seems like a major red flag that might lead to an audit. These are "hobbies" and not "businesses" so I am tempted to not go down that path.

I remember as kid when many people would "shop" in NYC and "ship" the purchases to their homes in NJ to avoid sales tax. It was not worth it for the states to enforce the law for so little sales/use tax money. Unfortunately, as more purchases moved online and states are loosing even more tax revenue they need to find new ways to recover it.

But again, I am not a tax professional. And as other tax professionals have shared and I included earlier, this is not new but it appears as state coffers run leaner they are upping enforcement of residents paying sales/use tax on out of state purchases (online or otherwise - online just makes it easier to avoid paying sales tax at time of purchase).

[C40_guy]

I'm not sure I understand the OP. So you have to track your online purchases or pay 1% AGP? That's ridiculous. There is no way I spent 1% on non-taxed online purchases. I suppose I can reverse engineer what I spent online from paypal.



Yes, pretty straightforward. Download last year's transactions, then total for TYPE = "eBay Auction Payment" for your purchases (but not your sales). That will probably represent your total taxable purchases, adjusted for clothing or other non-taxable items)

You might also want to look at TYPE = "Express Checkout Payment" (and maybe a couple of other types. Some of the vendors in this category may have already included tax in their total, and a column does list sales tax paid...

You will also need to calculate the COGS - shipping. I don't see a column that lists *just* the item cost...

In my case, it took me under 10 minutes to calculate that I owe the state $194.59 from my Paypal purchases. As others have mentioned, Amazon, when shipping directly, charges state tax. (Third parties who do their own shipping may not...)

[redir]

Oh well. So much for that extra $1.50 a week for the Costco membership. :D

They are gonna end up getting it some how ;)

[Mark McM]

It was the first time it appeared on my accountant's tax organizer/planner so I am assuming that MA has stepped up enforcement (only my second tax year in MA) or too many of their clients are getting dinged on it so they are trying to be helpful. I know this is nothing new about paying the taxes but was surprised that it was made so obvious this year.

I just exported a quicken report (I pay for everything by credit card and track in Quicken), deleted all local purchases, deleted all online purchases from companies who had local presence, removed clothing under $175, and the totaled it. Less than 1% of my AGI.

You might want to compare it again. The MA Safe Harbor amount is not equal to 1% of AGI - it is equal to the sales tax that you would have paid if you spent 1% of AGI on out-of-state purchases. Since MA sales tax is 6.25%, then the Safe Harbor amount is 6.25% of 1% of AGI, or 0.0625% of AGI. If your AGI is $50,000, the safe harbor amount is $31.50.

[NYCfixie]

You might want to compare it again. The MA Safe Harbor amount is not equal to 1% of AGI - it is equal to the sales tax that you would have paid if you spent 1% of AGI on out-of-state purchases. Since MA sales tax is 6.25%, then the Safe Harbor amount is 6.25% of 1% of AGI, or 0.0625% of AGI. If your AGI is $50,000, the safe harbor amount is $31.50.


...It appears that MA also wants you to pay taxes for your online purchases via annual tax filing. I was filling out my accountant's tax organizer last night and MA wants you to factor your online purchases and pay use tax on them or just agree to pay use tax on 1% of your salary (or AGI - I will find out more later today when I meet with my accountant) which they are assuming is a fair amount for all...



I know how to factor the numbers. My point is that if a person makes $50,000 (to use your example), the 1% of AGI = $500. So, if they made more than $500 of online non-taxed purchases they are better off using the "safe harbor 1% method". If they made less than $500 of online non-taxed purchases they are better off claiming the tax on just that.

Examples (assuming $50,000 AGI):
$750 * 0.0625 = $46.88
$500 * 0.0625 = $31.25 (safe harbor)
$375 * 0.0625 = $23.44


So this all depends on how much online non-taxed shopping a person does and their AGI. If you make a lot and spend little, probably better off figuring out the actual amount. If you make a lot and spend a lot the safe harbor might be a better option. If you do the math, as AGI increases and purchases are low, the safe harbor method may not be the best option.

[NYCfixie]

Yes, pretty straightforward. Download last year's transactions, then total for TYPE = "eBay Auction Payment" for your purchases (but not your sales). That will probably represent your total taxable purchases, adjusted for clothing or other non-taxable items)

You might also want to look at TYPE = "Express Checkout Payment" (and maybe a couple of other types. Some of the vendors in this category may have already included tax in their total, and a column does list sales tax paid...

You will also need to calculate the COGS - shipping. I don't see a column that lists *just* the item cost...

In my case, it took me under 10 minutes to calculate that I owe the state $194.59 from my Paypal purchases. As others have mentioned, Amazon, when shipping directly, charges state tax. (Third parties who do their own shipping may not...)

Be careful, many states charge tax on shipping as well.

[C40_guy]

Be careful, many states charge tax on shipping as well.

From some brief googling, it appears that Massachusetts does not.

YMMV.

[unterhausen]

does going through ebay automatically make it subject to use tax? Pennsylvania really doesn't address this very well. They address the seller side of yard sales, but not the buyer side, for example. Maybe assuming that nobody would comply.

[Ralph]

It's easy to know exactly what you sold....or bought on E Bay. Just go to "My Ebay" and it's listed.

[NYCfixie]

does going through ebay automatically make it subject to use tax? Pennsylvania really doesn't address this very well. They address the seller side of yard sales, but not the buyer side, for example. Maybe assuming that nobody would comply.

If your state charges sales/use tax on purchases you must pay it. It does not really mater where/how you purchase. We are just used to brick and mortar shops collecting the tax, on our behalf, and giving it to the state. With online purchases, if the seller does not collect the tax - individual seller or large corporation - you as the buyer are responsible for paying the sales/use tax to your state. Take the word eBay out of your statement and insert any retailers name because it has nothing to do with the individual seller. It is a sales/use tax on ALL purchases if your state charges sales tax.

This is nothing new. It just with more sales going online and across state lines, less tax is being collected so some individual states are stepping up enforcement.

Some of the confusion is the terminology. It’s the same thing but called different things based on the situation. If a retailer (or individual seller) collects it, it is known as sales tax. If you pay it directly to the state, it is known as a use tax. In either case, it is the same rate which is whatever your published state sales tax is.

[eBAUMANN]

FWIW, the MA state use tax "safe-harbor" amounts calculated based on your income bracket are pretty reasonable...only $31 for the year for me...small price to pay to hopefully deflect an audit on the paypal 1099-K i decided to ignore.

On a federal level, you dont need to report it (your paypal 1099) at all unless its over $20k or 200 transactions.
The idea being that if your paypal is truly being used as part of your business, you are already reporting that income.
The 1099-K just serves as an official record from paypal of your year with them.

On a MA level, the form goes out (sometimes) if you're over $600 and only if it was GAIN.
If you were even or at a loss, you dont need to report it.
Ive also talked to numerous friends of mine (in MA) who sold more than $600 of stuff and never saw a form...

I am not a tax professional, but based on everything I read in the past month on this subject, these are the conclusions that I reached for myself.

[William]

Hey, at least in Mass they don't want to tax you for accessing porn...yet. In Rhode Island though, they are looking for another thing to tax...

http://www.providencejournal.com/news/20180302/ri-bill-would-impose-fee-for-accessing-online-porn







William

[NYCfixie]

I met with our accountant last week and this was the outcome.

I factored what we owed for non-taxed online purchases and since it was less than the safe harbor we just paid what we actually owed.

The 1099-k is unrelated but since eBauman brought it up here I will share our experience. I ended up with a small gain due to buying new items, luckily flipping them for more than I paid, and at a time when eBay had a promotion and was charging final value fess of only $1. Our accountant deals mostly with high net worth clients (not us, he took us on as a favor to a friend) and could not quite understand why I would waste my time selling "used bike parts" because "I should have better things to do with my time". When my wife explained that some of these bikes are worth thousands of dollars he then said, "oh, it's a business". We finally got him to understand that this was a hobby and by chance we ended up with a gain this year. He reported it as income and said too please only deal with cash in the future or just show a loss because at some point if you keep showing gains the IRS will want us to treat it as a business.

It is impossible for PayPal to know if you had a gain or loss so they will continue to send out forms as long as you reach the legal amount of "accepted third party payments" and they are required to do it. I was annoyed because I would have been under the limit but a sale for more than $1500 was cancelled in my favor and PayPal refunded all the monies to the buyer but they still put in on my 1099-k. When I called, they refused to re-issue a corrected 1099-k even though they acknowledged that eBay let a sale go through that should not have been allowed, that eBay returned my final value fess, and that even they (PayPal) refunded the buyer all monies and it was not my fault.

So my advice (to all) after speaking to our tax professional, is speak to your own or become informed about what you owe related to use tax and/or if you received a 1099-k from PayPal.



FWIW, the MA state use tax "safe-harbor" amounts calculated based on your income bracket are pretty reasonable...only $31 for the year for me...small price to pay to hopefully deflect an audit on the paypal 1099-K i decided to ignore.

On a federal level, you dont need to report it (your paypal 1099) at all unless its over $20k or 200 transactions.
The idea being that if your paypal is truly being used as part of your business, you are already reporting that income.
The 1099-K just serves as an official record from paypal of your year with them.

On a MA level, the form goes out (sometimes) if you're over $600 and only if it was GAIN.
If you were even or at a loss, you dont need to report it.
Ive also talked to numerous friends of mine (in MA) who sold more than $600 of stuff and never saw a form...

I am not a tax professional, but based on everything I read in the past month on this subject, these are the conclusions that I reached for myself.

[HenryA]

[QUOTE=NYCfixie;2324962]I met with our accountant last week and this was the outcome.

Snipped a goood bit...

Our accountant deals mostly with high net worth clients (not us, he took us on as a favor to a friend) and could not quite understand why I would waste my time selling "used bike parts" because "I should have better things to do with my time". When my wife explained that some of these bikes are worth thousands of dollars he then said, "oh, it's a business". We finally got him to understand that this was a hobby and by chance we ended up with a gain this year. He reported it as income and said too please only deal with cash in the future or just show a loss because at some point if you keep showing gains the IRS will want us to treat it as a business.

Snipped some more...
/QUOTE]

You SHOULD have better things to do with your time!

What dry wits those accountants are.

[NYCfixie]

Snipped a goood bit...

I met with our accountant last week and this was the outcome.

Our accountant deals mostly with high net worth clients (not us, he took us on as a favor to a friend) and could not quite understand why I would waste my time selling "used bike parts" because "I should have better things to do with my time". When my wife explained that some of these bikes are worth thousands of dollars he then said, "oh, it's a business". We finally got him to understand that this was a hobby and by chance we ended up with a gain this year. He reported it as income and said too please only deal with cash in the future or just show a loss because at some point if you keep showing gains the IRS will want us to treat it as a business.

Snipped some more...




You SHOULD have better things to do with your time!

What dry wits those accountants are.


No offence meant to accountants (especially because my mother in law is a retired accountant) but I think it takes a certain personality to be one and the ability to only see the world in black and white (assuming you are an ethical accountant). At the end of the day, I am happy to pay a professional accountant for advice and to do my taxes since that is not my area of expertise.

And let's be honest, anyone who has ever posted in the classifieds, sold on eBay, or sold on craigslist has the same "hobby" (or sickness) as the rest of us.

[jlwdm]

I met with our accountant last week and this was the outcome.


... Our accountant deals mostly with high net worth clients (not us, he took us on as a favor to a friend) and could not quite understand why I would waste my time selling "used bike parts" because "I should have better things to do with my time". When my wife explained that some of these bikes are worth thousands of dollars he then said, "oh, it's a business". We finally got him to understand that this was a hobby and by chance we ended up with a gain this year. He reported it as income and said too please only deal with cash in the future or just show a loss because at some point if you keep showing gains the IRS will want us to treat it as a business.


...


I agree with your accountant from a money standpoint. I can make a lot more money working a little extra instead of buying a selling bike parts. So I buy bikes and ride them.

If buying and selling is something you enjoy doing then I can understand it as a hobby.

Jeff

[carpediemracing]

disclaimer: the Missus is a CPA

The profit thing - the flip side is that there are many, many, many hobbyists trying to show their hobby makes money so it can be a business so they can write off losses. Think "race car team" or even "bike racing". If you made money whatever out of whatever years (2 out of 5?) racing bikes, you could write off all your bike expenditures. But you'd have to show profit at some point to be able to do that.

CT is going after "something-use-tax" also, meaning sales tax on items purchased online that technically should be charged sales tax. I think the state asked for online records from certain vendors. I'm not sure, and I'm not going to wake the Missus to ask such a question.

[jlwdm]

My wife and I bought a lot of furniture in North Carolina about 15 years ago when we lived in AZ.

A number of states banded together and obtained the sales records from the large furniture sellers in NC. The dollars were big enough to make it worth the states time and effort.

We had to pay a substantial amount of use tax, penalties and interest.

Jeff

[NYCfixie]

I agree with your accountant from a money standpoint. I can make a lot more money working a little extra instead of buying a selling bike parts. So I buy bikes and ride them.

If buying and selling is something you enjoy doing then I can understand it as a hobby.

Jeff

I think my original statement was misunderstood (or I was not clear) because I do not do this as a hobby or a business. I think I sold maybe 5 things last year that I no longer wanted/needed. Using the word hobby was the only way to get our accountant to understand that I was just selling off stuff I no longer used or needed but that it was not a business. There are many people on this forum who could easily put me to shame with their "bike part hobby sales" in the hundreds of transactions per year.

[unterhausen]

I might have to re-think the purge of my basement hoarding stash, which is mostly not bicycle related.

[zap]

My wife and I bought a lot of furniture in North Carolina about 15 years ago when we lived in AZ.

A number of states banded together and obtained the sales records from the large furniture sellers in NC. The dollars were big enough to make it worth the states time and effort.

We had to pay a substantial amount of use tax, penalties and interest.

Jeff

I recall NY state doing that.........checking manifests at weigh stations and going after end users who purchased furniture in NC.

[NYCfixie]

Clarifying my original statement, my accountant was not able to treat the small gain as a "hobby". He listed out the gain on a schedule C as a business profit with title "Bike Part Sales". Make sure you always show a loss because these side "businesses" that aren't actually businesses can be a major red flag to the IRS.