Monday, August 31, 2009

Golden Rule: Use

Half of what this blog is about is called "use tax." What do we mean by "use?"

The meaning varies from state to state. This is most inclusive one that I've found. So it may be overkill depending on the state involved. Remember, there's an exception to everything!

"Use," in a use tax sense, means that the item is under the control of the "user."

The obvious example is the laptop on which I'm writing this masterpiece. I'm using the computer, therefore, I'd owe use tax (assuming I haven't already paid the tax).

The best example is when I store something on a shelf in my office, without even opening the box. I've used it as far as the state is concerned. I controlled it, even if I didn't get any value out of it. Therefore, I'd owe use tax (assuming I haven't already paid the tax).

Let's say that I buy a GPS unit from to give to my old buddy George, who works with me. I happen to be out of the office on the day the package arrives. I know George is going on vacation, and that he could really use the GPS unit (he gets lost a lot). So I call him and tell him that the package is on my desk and to please take it (I ordered it gift wrapped - I'm such a nice guy). Amazon didn't charge me tax because they don't have nexus in my state. So the responsibility falls to me to pay the use tax. While I never even touched the box, let alone the GPS unit itself, I had control over it. And, in addition, I used it by giving it to George.

Note that you don't have to own it to owe use tax. If you rent some tangible personal property and the vendor didn't charge you tax, then (depending on the state), you'll owe use tax on it. You don't own it, but you have control over it.

There are situations where contractors, who use building materials to construct a building, will have to pay use tax on the materials, even if they were purchased tax-free by the tax-exempt organization. That's because, while the organization may be exempt, the contractor isn't. And he used those materials.

This doesn't have to be hands on either. It can be by remote control.

Bottom line? You use by having control. That's all it takes.

Sales Tax Guy

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