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Saturday, June 28, 2014

California Oddity - Use Tax Exemption on Certain Foreign Purchases

There are many tax rules that might may puzzle us as to why they are there.  One I'd like to see repealed is the use tax exemption that a California resident gets if they bring back up to $800 of taxable goods from outside of the U.S.  This exemption can be used every 30 days. The goods must be hand carried back. If they ship them, they owe use tax. If they buy the same goods while traveling in Delaware (where no sales tax would have been charged), they owe California use tax.

The exemption has been around since the 1990s. It is intended to match the federal duty exemption, but it does not match it.  There are several special rules in the federal exemption. Also, the purpose of a duty exemption has no relationship to why you might want to have a use tax exemption.  I'm not sure why you'd ever want a use tax exemption.  By use tax exemption, we mean that there is still sales tax, only if a use tax would apply, would there ever be a need for a use tax exemption. 

I've got details and a link to an article in my SalesTaxSupport blog post.

What do you think?


Peter Rudolph CPA said...

Respectfully disagree. Traveling has so many taxes and government charges. For the State to not tax a small amount of goods seems fair.

Professor Nellen said...

Peter, thanks for the post. Your argument could be made for many examples. For example, gasoline already has federal and state excise taxes imposed, why also sales tax? And the income I used to buy the gasoline was already taxed.

The California use tax exemption for these foreign goods is not small - it is on up to $800 of taxable items every 30 days. Far more than most people buy online each year.