While the California use tax has been around since 1935 and many individuals and businesses owe it, many people are unaware of it. Not all tax practitioners discuss this tax with clients. Attorneys and their firms are also likely to have current and prior year use tax liabilities. It is estimated that in California, over $1 billion of use tax goes uncollected annually with about 60% of the amount attributable to businesses and the rest to individuals. All states with a sales tax also have a use tax and face similar collection challenges. E-commerce has increased the amount of use tax owed and therefore, the amount unpaid. States, in need of revenue, are becoming more aggressive in finding ways to collect this tax.

This article reviews:

1. The basics of the use tax;
2. Explains why states have uncollected use tax;
3. Why the compliance problem should be addressed;
4. The challenges to improved use tax collection;
5. The relevance to tax practitioners; and,
6. Possible improvements appropriate for California including a discussion of collection practices in some other states.

For the full text of Nellen's article, please see the PDF attached below.