Remember that purchase you made online — the one you didn’t have to pay sales tax on? Guess what? In most cases, you were supposed to pay the tax yourself, at the same rate as your state’s sales tax. These consumer-assessed taxes are called “use” taxes, and they typically apply when you or your business make a purchase from an out-of-state seller that is not required to collect sales tax in your state. If the seller does not collect the tax from you, and the purchase is otherwise taxable, you’re responsible for remitting use tax to the state. The idea is to keep in-state businesses from suffering a competitive disadvantage against out-of-state rivals.
The result? If your state has a use tax, you generally owe the tax on most items you buy out of state and bring in state. The tax applies to purchases both large and small, and sometimes even to items such as magazine subscriptions. In practice, states have had difficulty tracking purchases and collecting use taxes from individuals. Businesses are required to report use taxes on their sales tax returns and are audited to check compliance.
However, as states seek to collect more taxes without raising rates, enforcement of use tax laws could increase. Some states require you to report the use taxes you owe on your personal state tax return. Others may have reporting arrangements with neighboring states to track purchases, or they may monitor deliveries coming across state lines.
Failing to pay means you could be liable for penalties and interest in addition to the unpaid tax. If you think the use tax applies to you, give us a call for information about filing requirements.