The State Taxman Cometh

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

New Jersey, for example, has a form called the New Jersey Sales and Use Tax Form. The New Jersey Sales and Use Tax Act requires that residents pay a use tax when they buy taxable goods and services and the retailer in the state of purchase didn't collect sales tax or collected at less than the New Jersey rate of 7%.

New Jersey, as it gets desperate for revenue, is also getting tough on its Sales and Use Tax Act, which means it's looking for its share when you buy something out of state or over the Internet. Other states are following.

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

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

Many states besides New Jersey are in tough financial straits, so it is not hard to imagine that no matter where one lives this will fast become the norm. The bottom line: The days of making out-of-state purchases to avoid sales tax are likely ending.

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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.