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Sales & Use Tax Tips for February 2008
Why Concern Yourself With Use Tax?
What Is Use Tax And How Does It Differ From Sales Tax?
Sales Tax is typically imposed on sales of taxable products or service that occur entirely within a state. Use Tax is typically imposed on the use of a taxable product or on benefit derived from a taxable service. Use Tax typically applies to transactions that would have been subject to Sales Tax if the sale had occurred in the tax imposing state. The primary purpose of Use Tax is to prevent purchasers from avoiding Sales Tax through making out-of-state purchases.
Out-of-state vendors are typically required to collect Use Tax when they ship purchased products into a tax imposing state but only if they have physical presence in the destination state. Purchasers are, however, typically required to self-assess Use Tax if the vendor does not collect applicable Sales or Use Tax. They are also typically required to self-assess Use Tax when they purchase goods outside the state and subsequently bring such goods into the state for taxable use.
Why be concerned?
There are a number of reasons to be concerned with and informed about Use Tax requirements. We’ve listed some of the issues below:
- Use Tax is frequently an auditor target area that results in significant audit assessments since many business owners are unaware of Use Tax laws and self-assessment requirements.
- There is a common misperception that internet sales are not subject to Sales or Use Tax: "The Myth"
- Use Tax applies to merchandise withdrawn from resale inventory for self-use or to be given away as promotional samples. Some other common situations occur when items lose their exempt status when relocated from one state or local jurisdiction to another or when the tax rate is lower where the item was purchased compared to where it is ultimately used, stored or consumed.
- Vendors Use Tax is not your expense; it's your customer's! It becomes your expense if you don't collect it properly.
- Collecting and remitting Use Tax on your customer’s behalf is a service and convenience for them that saves them the burden of self-assessing and remitting Use Tax.
- Generally, you are personally liable if your business does not properly collect and remit Sales & Use Tax.
For additional insight, please see the Did You Know? section of our website.
Our professionals can help minimize potential exposure and make sure your company is in compliance with the sales and use tax laws. For more information visit our Services webpage.
* This tip is intended to provide general information only and is not to be considered as a substitute for professional advice.
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Associates Sales and Use Tax professional for a no-obligation consultation about your Sales & Use Tax issues.
