What is Use Tax?

Use tax is a state-level sales and use tax which applies to out-of-state transactional purchases. Use tax applies to tangible property and services which would normally be subject to sales tax if they were purchased from a local retailer, but weren’t. To ensure that businesses aren’t purchasing items without paying the appropriate amount of tax, use tax serves as a way for states to recoup taxes that would have otherwise gone uncollected.

How Does Use Tax Work?

At its core, use tax works by providing a notice to taxpayers about the use tax laws in their state and requiring them to pay taxes on any purchases made from out-of-state sellers. In most cases, it is the responsibility of the purchaser to self-report and remit payment for use tax. In some states, however, the state will make a direct tax assessment or send an assessment notice to the purchaser or a third party.

Who Is Required to Pay Use Tax?

Generally, consumers or individuals are required to pay use tax on their purchase if it was made from a business located outside of the state. Businesses are also responsible for collecting and remitting use tax on any out-of-state purchases. Businesses may also be responsible for collecting and remitting use tax on items they’re lending, leasing, or consigning to individuals.

In addition, businesses are required to collect and remit use tax on items they’re selling remotely. This applies to remote sales made through traditional phone-in orders, catalogs, and the internet. The business should have an understanding of the use tax statutes in their state and should be sure to accurately collect and remit the correct amount of taxes.

In conclusion, use tax helps states recoup taxes that would normally go uncollected. Use tax applies to out-of-state purchases, and businesses are generally responsible for collecting and remitting use taxes on items they’re selling remotely or lending, leasing, or consigning to individuals. To make sure you’re up to date on the use tax rules in your state, speak to a tax professional or research your local laws.