Wednesday, February 25, 2009

"So, what's this use tax?"

I get this question all of the time and I just realized I've never written about it directly.

Use tax was invented to plug loopholes in the law where sales tax didn't get collected. Essentially, the law works this way: if you have purchased something that should have been taxed, and it wasn't, then you owe use tax.

The best example is a book from Amazon. com. In most states, they won't charge you tax. But you're not off the hook. It should have been taxed, but didn't have to (that's another long story involving nexus). Therefore, you as the buyer must pay use tax.

The states really don't expect individuals to pay the tax, although they give you the opportunity and they're kinda ticked off about it. In many states, there's a line on your state income tax return, usually near the bottom of the second page, where you're expected to put something in there. Most people don't. And states generally have a form for you to fill out to report your use taxes. This is probably one of the least downloaded forms the states have. If you feel a pang of guilt, and want to start filling it out, it often has a name like "consumer's use tax return." Look on the state's web page under forms.

But businesses, who will get audited eventually, need to worry about this. They will eventually get caught. See this golden rule.

Sales Tax Guy
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