Overview of Use Tax
Use tax applies to online purchases, out-of-state purchases, purchases while traveling when sales tax was not collected. Use tax rates vary by state. Rates are often equal a state’s sales tax rate. Individuals and businesses that purchase items subject to use tax must pay the tax. If use tax is not paid, penalties may apply.
Examples of Use Taxable Purchases
Common examples of purchases subject to use tax include online purchases from retailers who do not collect sales tax and purchases made out-of-state from individual sellers or businesses not registered to collect sales tax.
Understanding Use Tax Application
Use tax applies when sales tax was not collected. Use tax rates often equal a state’s sales tax rate. If use tax is not paid, penalties may apply. Yet most states require consumers to remit use tax if sales tax isn’t collected at checkout. The only way to avoid sales tax is to purchase tax exempt items.
Clarification on Use Tax Liability
Use tax is charged when a customer purchases goods outside of their home jurisdiction without paying sales tax. It is also charged for items stored or used in a state where sales tax is charged. In certain situations, sales tax is based on the billing address rather than the shipping address when there’s no clear delivery address. This often arises with sales of digital products or services. You may owe use tax if you made an out-of-state purchase and were not charged tax.