_Search The Pilot * _ Pay Those Internet Taxes This Year -- Or Risk Going to Jail ------------------------------------------------------------------------------- By D.G. Martin _Are you ready to go to jail? It could happen to a lot of nice North Carolinians, based on what they do with their North Carolina income tax returns that are due in the next few days. The problem has to do with the so-called Internet taxes that some of the presidential candidates told us they wanted to abolish. The Internet taxes that Sen. John McCain and others want to outlaw are the sale taxes that state and local governments impose on local merchants. It is easy enough for state government to collect those taxes when the sellers are within the state boundaries. The state simply requires the merchants to collect the tax. But the courts tell us that states can’t force out-of-state sellers to collect taxes for them. For a long time this situation has been beneficial to catalogue sellers. Since they don’t have to collect sales tax, they can sell clothes and books to us for less money than we would have to pay if we bought the same item at the same price from a local store. The loss of sales tax revenues from catalogue sales is significant, but most state and local governments have gotten used to the idea that they would have to live without them. Then along came the internet and the new e-commerce. The sale of items in cyber-space is growing. More and more people are buying things on the Web that they used to buy from local stores. As a result, the local stores are hurting. So are the local governments that have to find some way to replace the lost revenues. A few months ago, I attended a booksellers convention and heard directly how the tax-free sale of books from Web-based sellers was unfair to them. One book merchant told about going into her local public library (supported by the sales taxes the merchant was collecting on her book sales) and finding the library was using its electronic card catalogue to refer its patrons to Amazon.com in return for a fee. The bookseller was understandably irate. But she and the other merchants and state and local governments are not likely to get help from the national government in collecting e-commerce taxes anytime soon. It sounds too much like a new tax. And finding an elected official who will talk about any kind of new tax is just about as hard as it would be to find a North Carolinian who has not yet been appointed to one of Gov. Jim Hunt’s many commissions. For a long time, North Carolina has had a tax on its books that would have taken care of this problem if the people who owed the tax had paid it. It is called the use tax. It works like this: If a purchaser buys an item and brings it into North Carolina without paying a sales tax on the transaction, he owes a use tax equal to the sales tax. In other words, if you bought a book from a catalogue or over the internet without paying sales tax, you owe a use tax. If you owe it, you probably haven’t paid it — yet. Most other North Carolinians who owe use taxes on such transactions haven’t been paying them either. Does the state enforce the use tax? It has not been vigorous in trying to track down small transactions. And since there has been no procedure to encourage or force North Carolinians to report these transactions and pay the tax, most people, including the tax collectors, have just overlooked it. But all that is changing this year. This year you and I are going to have make a hard decision — whether to pay the use taxes on the things we bought last year from catalogues or the Internet or to sign a false tax return and risk the severe penalties that come with such a violation. This year’s state income tax return has a new item that requires us to compute and report the use taxes we owe. I wonder how many people who are signing their returns this year appreciate the seriousness of what they are doing. Not many, I bet. I asked the secretary of revenue the other day whether or not they planned to enforce the new requirement strictly. She assured me that they took the act of signing a false tax return very seriously. The state revenue department won’t be going through your trash looking for mailing boxes from catalogue and internet sellers. But if your income tax return is audited for other reasons — or something else comes up to raise a question about your return — you can be sure the question of your computation of the use tax will be reviewed by the tax enforcers. So be careful when you fill out and sign your state tax return in the next few days. And when you hear the next politician talk about prohibiting taxes on the internet, just laugh and tell him you are already paying them. D.G. Martin lives in Chappel Hill.