VERMONT -- 'Tis the season for ringing in the holidays, and ringing up the cash registers. Vermont retailers make an estimated 40 percent of their annual incomes during the holiday season, which means many happy returns for the state's coffers come January. But as you track down just the right gift for Uncle Joe or Cousin Susie, keep in mind that if you're buying gifts online or in a state without a sales tax, you'll need to pony up when tax season rolls around in April.
In 2004, the Vermont Department of Taxes collected $270 million in sales taxes, about one-fifth of it from holiday-season sales. But as online shopping increases -- nationally, web-based sales are already up 23 percent over last year, according to Computerworld magazine -- the loss of sales-tax revenues is becoming a growing concern for all states. No wonder. Since there's no easy way to track the purchases, most of those sales tax revenues go uncollected.
But what if you're a conscientious, or guilt-ridden, Vermonter who believes in paying his or her fair share? According to the Vermont Department of Taxes, if you buy an item online or out of state and you're charged less than 6 percent sales tax, you owe Vermont money. It's not an issue if you shop in New York, Quebec or Massachusetts, where rates are all above 6 percent. But if you're buying dad a new snowmobile in New Hampshire, where there is no sales tax, or in Maine, where the sales tax is 5 percent, you'll need to fill out the line on your 2005 income tax form marked "use tax."
Do you have to pay taxes on every item you purchase? Not necessarily. Vermont sales-tax code provides 46 exemptions, on items such as food, medical equipment and home heating oil. But unless you're buying grandma a new X-ray machine or grandpa 300 gallons of kerosene, the exemption worth keeping in mind is on clothing and footwear. Anything that costs $110 or less is exempt, regardless of where it's purchased.
Some items are exempt from sales tax because they're subject to other taxes -- think automobiles and alcohol. Your new SUV will be taxed once you register for Vermont license plates, but that $50 bottle of Chardonnay you ordered online from the Napa Valley? You'll need to save a sip for the taxman.
Shopping in Canada adds another wrinkle: import duties. Lots of travelers assume that merch from duty-free shops isn't dutiable when they return home and clear customs. Not true. According to U.S. Customs and Border Protection, items sold in a duty-free shop are free of duties and taxes only for the country in which they were purchased.
Do you have to declare everything you buy when you re-enter the United States? Generally speaking, it's a good idea to declare large purchases, especially since bona fide gifts are often duty-free. Also, each person is allowed an $800 personal duty that covers most items.
If keeping track of duties and sales taxes is just too confusing, keep it simple: Do all your holiday shopping in Vermont.