S.C. Department of Revenue eyes tax collections from Internet sales

The state Department of Revenue is working on a plan to make sure the state collects millions of dollars each year from individuals and businesses that buy merchandise over the Internet.

The department is sharing information with 11 Southeastern states and some major retailers to identify people who don't pay taxes on online purchases.

"We're working with other states to come up with a plan to capture information on people who have purchased merchandise online and with retailers to have them collect the tax for us," said Department of Revenue spokesman Danny Brazell. "We're looking at all kinds of ideas."

Taxpayers are required to pay a use tax -- which is equal to the state sales tax -- on Internet purchases. They can use their state income tax forms to pay the use tax.

But very few people comply, Brazell said. He said only about 9,100 people used the state income tax form to pay the tax in 2003, although more individuals and corporations paid using another form.

"We're not looking to put anyone in jail," Brazell said. "But this is a tax law and we just want people to pay what they owe."

If a person purchases merchandise online and pays a sales tax to another state, but the tax is lower than South Carolina's 5 percent, the buyer is required to pay the difference. If the other state's rate were higher, however, the buyer would not receive a refund.

South Carolina collected about $1 million in use tax last year -- well below what it should take in. An impact study that the department did several years ago showed that the state was losing about $40 million a year, while a 2001 University of Tennessee study put the figure at $200 million, Brazell said.

"With more and more people going online and making purchases, the amount is going to continue to go up," Brazell said.

Eric Swanson, owner of Wolverine Coatings in Spartanburg, said he uses the Internet to purchase merchandise for his business and for personal use. He said that the Department of Revenue is looking in the wrong direction.

"I don't think that the average Joe Citizen buying something over the Internet should be policed," Swanson said. "The one that should be policed is the company doing the selling. How would the average person know whether they're supposed to pay sales tax?"

That part, Brazell said, is easy. The use tax was implemented in the early 1950s, the same year as the sales tax.

Brazell said the department is sending random letters to people to tell them that they might owe the state some money.

"It's kind of a shock to them when they get it. We've had some people pay after receiving a letter," Brazell said.

Will Folks, a spokesman for Gov. Mark Sanford, applauded the department's efforts.

"The law is the law, and anything the department of revenue is doing proactively to enforce it is a good thing," Folks said.

Robert W. Dalton can be reached at 562-7274 or

bob.dalton@shj.com.

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