Friday, September 11, 2009

Do I have to pay use taxes on my inventory?

Whenever I start talking about use taxes, the question almost always comes up about whether someone needs to pay use taxes on their inventory.

We need to make sure we know what inventory means. Here are some questions:
  1. Did you buy it with the intention of reselling it?
  2. Have you changed your mind about that?
  3. Are you using it as a demo unit?
  4. Have you given it to someone to use but you're still holding it on the books as inventory?
  5. If you're using it as a display item, do you intend to sell it for pretty close to the original price?
If you answered "yes" to the first question and no to the rest, then no matter how long you hold the inventory, you shouldn't owe use tax on it. You bought it for resale and that's one of the most fundamental exemptions for sales and use taxes. Even if you move it from state to state, you still owe no use tax.

Unfortunately, there are other taxes which may apply - such as personal property taxes (in some states).

But with regard to sales and use taxes, you should be off the hook. Just watch your answers to those five questions. Because if you answer wrong, then you've used the inventory and you will owe use tax.

More about withdrawals from inventory here.

Sales Tax Guy

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