NOTIONS Bruce Hetrick: Here’s how to avoid a difficult taxing situation

Bruce Hetrick is on vacation this week. In his absence, this column, which appeared on Dec. 10, 2001, is being reprinted.

If I were a betting man (and what entrepreneur isn’t?), I’d bet that you bought something from an out-of-state firm for yourself or your company this year.

I’d bet that you logged onto the Internet and purchased new books, computers or pantyhose.

I’d bet that you shopped via catalog for your niece or nephew, and shipped that tutu or Tonka truck directly to Seattle or Saratoga Springs, N.Y.

I’d bet that you ordered office supplies from a high-volume retailer in Enid, Okla., who saved you a few cents per paper clip.

I’d bet that you bought a subscription to a magazine that’s published in San Diego and mailed from Dubuque, Iowa.

I’d bet that you shopped in Chicago or Sheboygan, Wis., and heard the nice sales clerk say, “Why don’t we ship that so you won’t have to pay sales tax?”

Now, I’ll make another wager: I’ll bet that when you fill out your Indiana tax return (or, for you well-off folks, your accountants’ questionnaire so they can fill out your tax return), you’ll forget some (or all) of those out-of-state purchases.

You won’t do this out of fraudulence or vengeance; of course not. You’ll do it because the tax laws are complicated, because the government does a poor job of explaining them, because you won’t understand what’s taxable and because you’ll have misplaced some receipts.

And yes, some of you, being betting men and women yourselves, will figure the odds of being audited are slim. So you’ll wink at that sly gambler in the mirror, rationalize that “everyone does it,” and save a few bucks by excluding those out-of-state purchases.

Well, my friends, my firm this year suffered the slings and arrows of a random audit by the Indiana Department of Revenue. Having been through that process, having subsequently witnessed Indiana’s fiscal mire, and having met some of the less-fortunate souls who depend on state government for life, health and bare essentials, I must make a one-word request of all who might deny their dulydue taxes on this year’s return:

Fuhgedaboudit.

Folks who oppose new laws sometimes argue that all would be well if we’d simply enforce existing laws. Applying that same logic, folks who oppose new taxes should be first to pay the taxes already on the books.

But many don’t. And the impact on our state is enormous.

During Indiana’s 2001 fiscal year, state auditors cited Hoosier businesses for more than $23 million in unpaid sales and use taxes-and that’s merely what they found among the minute percentage of firms they audited.

Add to that the taxes “forgotten” by hundreds of thousands of other firms and millions of individuals, and we might hear fewer rumblings about new revenue.

Last week, Indiana Deputy Audit Administrator Steven Englert sat down with me to explain the kinds of mistakes auditors find and why he thinks we taxpayers mess up.

In a nutshell, Englert cited complicated tax laws that are constantly changing, gray areas that are subject to interpretation and debate, and just plain ignorance-especially about use taxes.

By this time, I’m assuming the accountants in the audience have concluded I’m the one who’s ignorant. For the rest of you, here’s a use-tax primer from Englert on what you owe.

If you buy a product in-state, the vendor should charge you 5-percent Indiana sales tax and pay that tax for you. Get and keep a receipt to prove that the vendor did so.

If you buy a product out-of-state-on the Internet, from a catalog or while shopping in person and shipping things home-you owe 5 percent Indiana use tax. It’s your responsibility, and-unless you have a receipt showing the vendor paid-you should fess up at the time you pay your state income tax.

There are gazillions of exceptions to this oversimplified explanation-based on services vs. products, types of industries, what you do with what you buy, etc. But in a nutshell, if you’re thrilled to have cleverly avoided sales tax, you probably owe use tax in the same amount.

Now, if you want to risk it, know that a single audit has cost my company thousands of dollars worth of time to prepare for and respond to state officials. Henceforth and forevermore, we shall meet our obligations the first time.

But taxpayers aren’t the only ones with obligations. Legislators need to simplify a messy tax code and state administrators need to pay more than one media relations/publications pro to explain tax laws statewide.

During my meeting with Englert, I recommended several ways the Department of Revenue Services could more effectively communicate with taxpayers and, in the process, increase state revenue. I’d value those ideas at approximately $11,833.24. Coincidentally, that’s what the auditors initially said we owed the state. Let’s call it even.