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The Taxman Trolls the Interstate

BERKELEY HEIGHTS, N.J. (TheStreet) -- As the year-end holiday and the New Year celebrations fade into the background, tax season is upon us. Given the economic slowdown and the state's enormous looming financial obligations (pensions, retiree health) states are getting more aggressive in looking to raise tax revenues.

For example New Jersey has a form called the "New Jersey Sales and Use Tax Form." The New Jersey Sales and Use Tax act has been around for awhile and requires a tax be paid when goods and services are purchased for use in New Jerseyand sales tax was not collected by the retailer in the state of purchase, or was collected at a lower rate than the New Jersey rate of 7%. So what is different this year? New Jersey residents are required to answer the following questions right on their 2011 tax return:

  • Did you make untaxed purchases from out-of-state retailers (e.g., on Internet)?
  • Did you have individual purchases less than $1,000?
  • For purchases less than $1,000, do you have all the receipts to enter below?
  • If you answer "No," the optional use tax table will be compared to the use tax on entered purchases less than $1,000, and the greater tax will be used. If you answer "Yes," the use tax will be calculated based on your entries below.
  • Did you have individual purchases of $1,000 and greater? You must enter individual purchases below.

The State of New Jersey wants you to self-report all single taxable purchases greater than $1,000 with out-of-state retailers and pay the New Jersey 7% sales tax. Also, for smaller individual purchases (under $1,000 each) you provide untaxed individual purchases and apply the 7% rate. If you don't have the receipts the State of New Jersey is happy to provide a table to calculate a use tax based on your New Jersey gross income.

For New Jersey residents with untaxed out-of-state individual purchases greater than $1,000, keep in mind it is likely the state is attempting to collect sales data from out-of-state retailers. As technological advances continue the states will be in a better position to evaluate how truthful you have been about purchases.

Many states other than N.J. are in tough financial straits so it is not hard to imagine this fast becoming the norm, no matter where one resides. The bottom line is, the days of making out-of-state purchases to avoid sales tax are likely ending.

Michael Maye is the founder and president of MJM Financial Advisors (www.mjmfinadv.com), a registered investment advisory firm in Berkeley Heights, N.J. He is a member of the National Association of Personal Financial Advisors (NAPFA) and has been a speaker covering tax topics at NAPFA's national and regional conferences. Maye has also been a frequent contributor to the Star Ledger of New Jersey's "Biz Brain" and "Get With the Plan" articles. In addition to NAPFA, he is a member of Financial Planning Association, American Institute of Certified Public Accountants, New Jersey State Society of CPAs and the Estate Planning Council of Northern New Jersey.

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