By Charles F. Spielmann
Use tax is a tax on the use of goods or certain services when sales tax has not been paid. Goods are subject to either sales or use tax, but not both. Use tax, unlike sales tax, is due at the rate where the purchaser first uses the article, not where the sale takes place. Use tax may also due on any freight, delivery, or shipping charges paid to the seller.
Use tax is due if:
Goods are purchased in another state that does not have a sales tax or a state with a sales tax lower than the state the purchaser is in. For example, items purchase in Oregon that are used in Washington are subject to use tax.
Goods are purchased from someone who is not authorized to collect sales tax. For example, purchases of furniture from an individual through a newspaper classified ad or a purchase of artwork from an individual collector.
Goods are purchased out of state by subscription, through the Internet, or from a mail order catalog company that does not collect tax at the time of the transaction.
Personal property is acquired with the purchase of real property.
Not all use tax derives from sales transactions. There are also internal transactions a company might initiate that will trigger use tax consequences. For example, ABC Furniture Company buys its inventory tax-free with a resale certificate, then charges sales tax to its customers. But if this company removes furniture from inventory for use in the retail store by its sales staff, it has triggered a tax incident: use tax is due on the converted inventory that is being used, not sold. The states differ in the tax basis of such a transaction: some tax [cost], others [cost + overhead], and still others [cost + overhead + markup].
States claim that use tax puts in-state retailers on a level playing field with remote sellers. But, while a brick-and-mortar store only has to deal with the sales tax laws of its own location, remote sellers have to deal with the use tax laws of many jurisdictions – up to every U.S. state and locality that assesses them, if the company has a presence or “nexus” in every state.
To complicate matters even further, both states and the federal government have recently suggested expanding the definition of nexus in the hopes of generating more tax revenues. As unlikely as a nation-wide sales tax – something like the Value Added Tax (VAT) Europe uses – might have seemed a few years ago, the possibility grows higher as the recession drags on.
States With No Use Tax:
Delware, Montana, New Hampshire And Oregon
States With A Use Tax That Is Not The Same As The Sales Tax:
Alabama, Arizona, Colorado, Missouri And Oklahoma
States With A State-Wide Use Tax, But No Local Use Taxes:
Iowa, Illinois, New Mexico, Vermont And Wisconsin
*Technically, Hawaii has an excise tax, not a sales tax