Buying an expensive instrument? Don’t try to avoid sales tax!

Volume 113, No. 2February, 2013

Michael Chapin

One of my clients bought a very expensive instrument from a store. The store, acting as agent for a private owner, wanted her to provide an out-of-state address where they could say the instrument was shipped to when she actually took it home herself. This way the store wouldn’t collect New York sales tax.

Why? The original owner didn’t want any potential sale to include sales tax but instead wanted all the money a buyer could come up with for themselves – or they wouldn’t sell it.

My client came to me at tax time with this problem. We decided she should pay something called “use tax” in lieu of the sales tax the store wouldn’t collect. Use tax can be paid on your state tax return for purchases you didn’t pay sales tax on. Ordinarily, this is for out-of-state or online purchases.

Though the sales or use tax may be several thousand dollars for expensive instruments, it is much better to pay it than risk a very large bill from New York in the future.

Here’s some history for you: many years ago, fur stores in New York used to let out-of-state customers not pay sales tax and walk out of the store wearing their fur purchases. The stores thought they could let these customers get out of sales tax by mailing an empty box to the customer’s out-of-state address, thus completing the sale. Though this initially saved people thousands of dollars and helped the fur stores make the sale, the state finally audited the fur stores and sent large tax bills with interest and penalties to all out- of-state buyers!