Use tax is a sales tax on out-of-state purchases brought into one’s home state where sales tax was not collected at the time of purchase.
Application of Use Tax
Use tax applies to goods and services purchased outside one’s state if they will be used, stored or consumed in one’s own state. For example, if living where the sales tax rate is 5% and an online retailer does not collect that tax, one would owe a 5% use tax to the state and locality.
Additionally, use taxes are pertinent to business transactions involving office equipment bought elsewhere but used in your local offices.
State Variations
Each state may have its own use tax rules and rates, but the fundamental purpose is the same—to tax goods used locally that were not taxed at the time of purchase.
Examples of Use Taxes
- Online purchases from retailers not collecting sales tax
- Out-of-state purchases such as furniture or office equipment
A use tax is levied by various state governments in the US and applies when a product or service is used, stored, or consumed in a state and sales tax was not collected at the point of sale.
California imposes a base sales and use tax rate of 7.25 percent, with possible additional district taxes.
The key difference between use tax and retail sales tax is that use tax is self-assessed by the consumer or business on out-of-state purchases, as opposed to being collected by the retailer.