You Paid For It: Sales Tax Mistakes

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by David Alan, 13News

WVEC

Posted on February 25, 2013 at 7:27 PM

Updated Thursday, Oct 31 at 10:05 PM

NEWPORT NEWS -- Geoff Tennille and his wife Martha are pretty savvy shoppers.

They watch prices very closely and they know what items should be charged state sales tax.

So, when they purchased medicated mouthwash at a Target in Hampton and were charged 5% tax, they knew something wasn’t right, even if the store didn’t.

“The state clearly needs to make it clear to the stores to know what is taxed and not taxed,” said Martha Tennille.   

13News Investigators bought a number of over-the-counter items at Target; sunscreens with SPF, products for diaper rash and medicated mouthwashes. 

We were charged sales tax even though a state law that’s been on the books for 15 years clearly says, “Nonprescription drugs and proprietary medicines" are exempt from taxes if they are used in the, ”Cure, mitigation, treatment or prevention of disease of human beings.”

“They err on the side of 'Let’s tax it until someone complains,'” Martha Tennille added.

13News Investigators found that Target isn’t the only store incorrectly charging sales tax on over-the-counter products.

We bought a wide range of items at a number of major retailers, grocery stores and pharmacy chains across Hampton Roads. The state says all of these products are supposed to be tax-free. 

Although 13News first brought this issue to light five years ago, we still found store after store incorrectly charging customers sales tax.

The issue was news to State Sen. Jeff McWaters, who said this needs to be looked into.

“Look, people pay enough in taxes. We hear that all the time, and they want us to be very efficient with how their money is spent,” McWaters said.  

State Sen. Ralph Northam told us he supports a yearly review of tax credits.   

“Just to put a tax credit in and forget it and let it go probably isn’t in the best interest of the Commonwealth,” Northam said.  

A family that regularly buys antiseptic mouthwash, a fluoride rinse for the kids, sunscreen and diaper rash ointment might pay $1.40 in sales tax they didn’t owe.  That money adds up.  In fact, if every household in Virginia overpaid just one dollar a week in sales tax, on items such as medicated mouthwash, sunscreen and shaving cream, the state would collect more than $150 dollars a year.  That's money that you could be using to buy gas or pay your power bill. Over 15 years, that kind of money adds up to more than $2 billion.

13News Investigators want to know what it's going to take to get stores to stop wrongly charging sales tax.  What’s the Department of Taxation doing to make sure people get the tax break they were promised and how has this issue escaped lawmakers for so long?

When pressed by 13News Investigators, Target did admit to finding errors, saying, “We plan to use this experience to learn and better our review processes moving forward.”

Five years ago when we confronted Target about the very same issue we were told, “We have made our teams aware so we can take appropriate action.”

In 2008, the Department of Taxation told 13News it only has a handful of auditors to keep track of 200,000 stores.

“We leave it to the retailers, in large part, to police themselves,” said Joel Davison, spokesman for the Department of Taxation.    

When 13News asked then-Governor Tim Kaine how this could be going on, he told us he was outraged. “If we have a chance to catch folks, they will know we take this very, very seriously,” Kaine told us.

Since our first reports aired, more stores are getting it right. Our spot-check found Walgreen's getting it right the most.

There’s still a lot of confusion as to which over-the-counter items are to be taxed and which aren’t.  Newer products hit store shelves every day, which only adds to the confusion.

Clearly what was intended to be tax relief for people of the Commonwealth 15 years ago is still a tax burden, and there’s no reason to believe this will be fixed anytime soon.

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