Define: Use Tax

Use Tax
Use Tax
Quick Summary of Use Tax

Use tax is applicable when purchasing items from another state that does not charge sales tax. In such cases, individuals may be required to pay a use tax as a substitute. This tax is essentially for using items purchased from out of state. While most states have a use tax, it is not commonly paid by individuals. However, businesses are required to be diligent in reporting their purchases, and individuals may face consequences for not paying taxes on significant purchases such as cars.

Full Definition Of Use Tax

When people or businesses purchase items from another state that did not have sales tax applied, they are required to pay use tax. Although most purchases include sales taxes, there are instances where people buy items from out of state and do not pay sales tax. In such cases, they must pay use tax instead. For instance, if you purchase something online from a retailer in another state and they do not charge you sales tax, you will have to pay use tax on that purchase. Use tax rates are similar to sales tax rates and typically have the same exceptions, such as not applying to groceries. Although most states have use tax laws, they are not always enforced. While businesses must report their covered purchases on their tax returns, individuals may not always pay the tax. However, individuals may be audited for not paying taxes on larger purchases outside the state, such as vehicles. Overall, use tax is a means for states to ensure they collect taxes on purchases made by their residents, even if those purchases are made outside of the state.

Use Tax FAQ'S

Use tax is a type of tax imposed on the use, storage, or consumption of tangible personal property that was purchased without paying sales tax.

You owe use tax when you purchase taxable items from out-of-state retailers or online sellers who do not collect sales tax, and you use, store, or consume those items in your state.

Sales tax is typically collected by the seller at the time of purchase, while use tax is paid directly by the buyer when sales tax was not collected by the seller.

Use tax is generally calculated based on the purchase price of the taxable items, including any shipping or handling charges, and at the same rate as the sales tax in your state.

No, you are only required to pay use tax on taxable items that you use, store, or consume in your state. Some states have specific thresholds or exemptions for certain types of purchases.

You can report and pay use tax on your state’s tax return, usually on a specific line or form designated for reporting use tax. Alternatively, some states provide online portals for reporting and paying use tax.

It is your responsibility to pay use tax on taxable items that were not subject to sales tax. Avoiding payment of use tax may result in penalties and interest if audited by the tax authorities.

If you fail to pay use tax when required, you may be subject to penalties, interest, and potential audits by the tax authorities. It is important to comply with your state’s use tax laws.

Some states provide exemptions or deductions for certain types of purchases, such as items used for business purposes or items purchased for resale. Check your state’s tax laws for specific exemptions.

Yes, if you return a taxable item for a refund, you may be eligible for a refund of the use tax paid. Contact the seller or your state’s tax authority for instructions on how to claim a refund.

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This site contains general legal information but does not constitute professional legal advice for your particular situation. Persuing this glossary does not create an attorney-client or legal adviser relationship. If you have specific questions, please consult a qualified attorney licensed in your jurisdiction.

This glossary post was last updated: 17th April 2024.

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