GREENVILLE, S.C. - State officials may now be able to catch people who skip paying taxes on online purchases in the act.

The Revenue Department has reached agreements with other states and with major retailers to exchange information, so they may know what you bought and whether you paid sales tax when you bought it, said agency spokesman Danny Brazell said.

"I don't want to make this seem like we're looking over people's shoulder. We obviously are not," he said.

But he advises holding onto your receipts "in case you receive a letter from the Department of Revenue saying we know you made a purchase out of state."

The state now collects a "use tax" - equivalent to a sales tax - when taxpayers report online purchases on state income tax forms. But officials suspect the honor system isn't working that well.

Just 9,160 of South Carolina's 2.1 million taxpayers - or one out of every 230 - paid any use tax in 2003, Brazell said.

A study by the University of Tennessee in 2001 estimates the state could be missing out on as much as $200 million per year in uncollected use tax from Internet sales.

Although the use tax has been around since 1951, when many people were buying from the popular Sears, Roebuck and Co. catalogs, many people haven't thought about it applying to Internet purchases, tax preparers said.

"A lot of people are very unaware of this tax," said Wendy Shaw-Coker, owner of B&A Fast Tax in Greenville.

Some online companies add sales tax to your purchases, but most of the time you have to do it yourself, said Martha Duke, associate director of Clemson University's Master's of Business Administration program which offers a degree in e-commerce.

"I certainly understand why they are trying to recover revenues that they feel may be going elsewhere, and I think it's a reasonable thing that the states are looking at," she said.

As with sales tax collected by South Carolina businesses, all of the money goes to education, Brazell said.

The tax, which applies to all items the sales tax applies to, is also a concession to South Carolina business owners who say companies that sell to in-state residents without charging the same amount of tax have an unfair market advantage, he said.

"It's awfully tempting when you order something if you haven't paid the tax just to not worry about it," Brazell said. "But there's always that chance that somehow the Department of Revenue might have picked up the fact that you made a purchase out of state."

The recent agreements come two years after the state opted not to sign on to a program in which several large online retailers, including Target and Toys 'R' Us, began charging sales tax to residents of 38 states. Officials said then South Carolina bypassed the program because the state could probably get bigger collections on its own.

ON THE NET

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