The Tourist Tax that’s Making You a Criminal -- Wacky Tax Wednesday

I recently visited Portland, Oregon, where I perused a glossy magazine touting the area’s attractions. Page after page, the following phrase leapt to my eyes: “Tax-free shopping!”

A similar emphasis is visible on the Travel Portland website, which features these catch-phrases:

• “In Portland, you’ll find everything you expect from big-city shopping–except the sales tax.”
• “So many things to get tax-free.”
• “Whether you’re in the market for a big purchase from a major brand or a handcrafted souvenir, Portland has it—with zero sales tax.”

It isn’t wacky for a state or a town to market its finer features. Tourism is a big industry and tourist publications should entice visitors by any means necessary. And what is more enticing, for those of us who abide in sales tax states, than tax-free shopping?

Except it isn’t true.

Oh, it’s true that there is no sales tax in Oregon. But it isn’t true that I wouldn’t owe tax on goods purchased in Oregon and then brought back to Washington for use. The only tourists who can truly shop tax-free in Oregon are those that hail from the other sales-tax-free states: Alaska, Delaware, Montana and New Hampshire. The rest of us are supposed to pay our own state’s use tax on our purchases.

I read about use tax every day, but many people don’t know it exists. This is true even of state officials, like the Lieutenant Governor of Texas, David Dewhurst.

According to the New York Times, when Mr. Dewhurst was the Texas Land Commissioner, he “got into a flap with the state comptroller’s office over things he bought in other states for use” in Texas. He paid the taxes he was told he owed, of course, but was still confounded by the existence of use tax. For some time afterwards he was said to periodically ask visitors “whether they had ever heard of such a tax, seeking sympathetic ears for his experience with the long fingers of the state government’s tax collectors.”

Many people--probably most people--would share Mr. Dewhurst’s surprise if an auditor came to their door and asked them to pay use tax on books purchased in Portland, jeans from New Hampshire, or a scarf from Montana. And it would be surprising for an auditor to go door-to-door in search of scofflaw tourists. First, there are too many individuals and not enough auditors. Second, although use tax revenue can add up (in 2012, Texas did not collect approximately $1.78 billion in use tax), individuals typically owe small amounts. The benefits would not outweigh the costs.

And use tax isn’t owed only when residents of sales tax states purchase taxable goods in tax-free states. Most states want residents to pay the difference on goods purchased in states with a lower rate of sales tax. That’s certainly the policy in Florida, Minnesota, and Washington.

In short, if you live in a state with sales tax, you probably owe a tax you don’t know exists. Now that’s wacky.