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Richard Rider

New, legal(?) method for millions of people to avoid paying sales tax

Did you serve in the military and receive an honorable discharge?  Or did a family member?  It now appears you can avoid paying sales tax on many purchases, because you now have online access to the military exchanges.

Up until now, in the U.S. you could only shop at these exchanges if you were active duty (active or reserve) or retired military.  DOD has unilaterally decided to let ALL honorably discharged vets shop there — but only online. Overall that means at least 13,000,000 more people (and often their families) will be able shop there online.

That would come to about 1,560,000 California veterans — vets who were heretofore not eligible for military exchange privileges.  And the exchanges are TOUTING the fact that you won’t have to pay sales tax.

The state and local government tax grabbers can’t be happy about this development.  And they DAMN sure don’t want vets to know about it. Too bad for them.

It’s ridiculously easy to sign up online. And free.  You need no paperwork.  Apparently they use the last four digits of your social security number to verify electronically that you are honorably discharged.  If there are glitches, they guide you through getting it done with ye old paperwork, or by phone.

Here’s the link.  Approval is usually instantaneous, but it’s still a work in progress.  Based on user comments, it seems to be much improved from just a month ago.

It appears that the program officially starts in November 11, 2017, but at the moment they are accepting “beta testers” to begin shopping now.  Apparently they ARE filling orders placed now.  A word to the wise . . . .

Several caveats should be considered:

1.  My experience is that these exchange prices are good, but not great — at least on many items. Here’s a pretty good 2014 U-T article making this point.
Membership “big box” stores — Costco and Sam’s Clubs — are better — though they offer fewer choices. Even Walmart and Target can offer lower prices.  But I tested it against discounter Amazon for computer purchases, and found the pricing to be about the same on my small sample.  The point is, shop AND compare — at least on larger ticket items — keeping in mind the sales tax savings.

2.  It’s not completely clear to me if the states might still want you to pay sales tax on such purchases. After all, the ‘sales tax’ is really a sales OR USE tax.

I contacted the CA state agency administering the sales tax, and got a telephone opinion (we all know what THAT’S worth!) that if the product is bought in the state of CA, it’s up to the VENDER to pay the sales tax. The customer has no obligation.  I like it!
More important, state agencies simply do not go after folks for such transactions — leaving both the exchanges and their customers alone.

Normally when you buy something avoiding the sales tax (online, in Oregon [no state sales tax], or whatever), you are still required to report such purchases on your state income tax form and pay the “use” tax.  Some do report such purchases, many fudge, but the law’s the law.  But these military exchange online transactions are normally considered an IN-state purchase (the goods are delivered from a local base), which absolves the customer of any obligation (supposedly!).

3.  The shipping is free, but requires a $50 minimum purchase for this freebie. No free shipping on “major appliances.”  Many (like myself) use Amazon Prime or Walmart online (free with $35 total purchase) — thus usually avoiding the shipping charges.  But if one pays with a military exchange credit card, the shipping is free regardless of the value of the order.  No annual fee for the card, and awards points for purchases (of course). To apply for the card:

4.  These exchanges (retail stores) pay their own costs, which are inflated a bit.  But they pay no taxes and usually get the land free, so overall their costs are not too high.  On the other hand, the commissaries (military grocery stores) are heavily subsidized by the taxpayers, resulting in prices about 20% less than grocery stores.  This new “all vets” military exchange policy does not apply to these subsidized commissaries.

5.  Practically speaking, this benefit is worthwhile on big ticket purchases.  Not so much on clothing or nicknacks.  But online shopping is a valuable convenience in itself.

6.  Still unclear is whether such online exchange purchases avoid California’s annoying electronic waste recycling fee (eWaste) — a $3 to $5 fee for buying tech products that usually are recycled anyway.  I’ll try to run this to ground.

I find it amusing that one government agency is “cheating” another government agency out of its tax booty — with the customer the beneficiary.  I can live with that.  Not sure our rapacious California politicians can say the same.

BTW, my U-T newspaper ran the Associated Press story describing this innovation on 7/21/17. The clueless AP reporter droned on and on, but never mentioned the sales tax savings.  Journalism school reporters should not be allowed to report on financial matters.