What's that Vt. use tax letter and do you have to pay?

BURLINGTON, Vt. (WCAX) A recent letter from the Vermont Tax Department has many people fired up. About 20,000 Vermonters got a letter telling them they might own use tax. Viewers asked us what it is and why they have to pay it. Our Cat Viglienzoni got some answers.

"Most of the time, when you ask people if they owe use tax, they go 'hunh?'" said Jeff Forthergill, a CPA.

Fothergill has been working with Vermonters on their taxes for more than 30 years. And he says whenever the subject of use tax comes up, he gets blank stares.

"Nobody has the records to do anything accurately with it. And that's kind of the pipe dream that's going on with this whole theory," Fothergill said. "It's just not realistic."

He says the recent letter has generated a lot of heated discussion from people who say they don't understand what they're paying the state for.

"People feel that they're being bullied," Fothergill said. "And I don't blame them for feeling that way."

Vermont Tax Commissioner Kaj Samsom agrees it's complicated. But he says it's the only way to try to level the playing field between Vermont businesses and other retailers. Samsom says their department is trying to cut down on the perception that shopping online or across the border is tax-free. But while you're supposed to pay the state's 6 percent sales tax on taxable items you buy, he says about 75 percent of people don't.

"It's the tax department's job to apply every tax fairly and equitably. And this tax isn't being applied fairly and equitably when you have probably no more than 25 percent compliance, that's not fair to the people who have been paying all along," Samsom said.

The letter campaign, he says, was the easiest way to remind Vermonters about this tax. But we heard from some of you that the tone of the letter felt like a threat. Samsom says that's not the case.

"It's not an audit. It's not a shakedown or anything like that," Samsom said.

The state doesn't know how much you owe on use tax. So what do you need to do if you got one of these letters? Samsom says take another look at the way you report your taxes. But Fothergill said, "Honestly unless you have some significant exposure, I would disregard it."

Our viewers had a lot of other questions. One big one we heard about was what happens now that Amazon started charging sales tax in February? The state estimates that change will bring in an additional $7 million to $8 million in sales tax revenue. But it's not a perfect system. While Amazon is paying the sales tax on its items, when you buy from a third party through Amazon's site, you may still be on the hook for Vermont's use tax.

"Amazon is definitely collecting and remitting sales tax on their direct sales of their products when it says sold by Amazon. But those third party sellers, there's still a gap there," Samsom said.

So how do you find out how much you owe in use tax? One option is to keep track of what you buy online that you didn't pay tax on and multiply the amount by the 6 percent sales tax rate. But the state says if you don't keep your receipts-- which they know most people don't-- you can pay based on your income from a use tax table that they provide online.

The state made changes to that use tax table because of the shift with Amazon. A person who made about $56,000 a year would have paid $110 in use tax last year. That means they would have had to buy $1,833 of taxable items online to warrant that much in sales tax. The tax commissioner says they felt that was too high, especially since Amazon is charging sales tax now. So they cut that amount in half this year. So now that person with an income of $56,000 would pay about $56.

Click here for more on the use tax for individuals from the Vermont Department of Taxes.