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STATES ORDER UP TAXES IF YOU BUY OVERSEAS
By Deborah Lohse

(MONEY Magazine) – Okay, so you splurged on that $1,000 porcelain vase when you were in Japan and figure it was a good buy even after paying the $66 U.S. Customs Service duty. But imagine your surprise six months to two years later if you get hit with an $85 tax from your state on the vase. Impossible? Believe it or not, residents of California, Illinois, Kentucky and New York have started receiving such bills recently for so-called use taxes -- a kind of sales tax on items bought outside the state. (North Dakotans have been getting the notices for almost three decades.) What's more, with state governments starved for cash these days, the number assessing use taxes on purchases overseas as well as from other states is almost sure to rise in the next few years. ''States are very eager to find a way to collect more revenue,'' says Verenda Smith, government affairs liaison at the Federation of Tax Administrators, a professional group representing state revenue departments. The unwelcome tax generally carries the same rate as your combined state and local sales taxes and is supposed to be paid within 20 days or so after you bring the item home. State tax collectors are tracking down travelers by sending auditors to review Customs declarations records randomly at local points of entry. (The tax officials aren't yet pursuing residents who return from abroad to another state.) Generally, you owe use tax on any item you list on the declaration form that you fill out when re-entering the U.S., even if it was exempt from Customs duty. But some states aren't too hard-nosed. California, for example, doesn't tax the first $400 in purchases per traveler, along the lines of Customs rules. And Illinois lets residents deduct any foreign sales tax they paid. If you don't pay the tax immediately, you may get the unwanted bill in the mail, generally within six months to a year after you've returned home. But New York, Kentucky and Illinois now search through Customs records as far back as two years to nick residents who made purchases while traveling out of the country during that time. And they tack on penalties and interest too. There's only one way to escape a use tax for the foreseeable future: move to Alaska, Delaware, Montana, New Hampshire or Oregon. Those are the only states that don't have sales taxes -- and therefore aren't likely to hit residents with use taxes any time soon.