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What is a Use Tax?

Jim B.
Jim B.

A use tax is a tax in the United States on goods or services for which a sales tax has not already been levied. This tax is charged by the state in which the items in question is being used, which usually turns out to be the home state of the individual who bought the items. Such taxes become applicable if a good is bought in a state that has no sales tax and is brought into another state that does have one. In most cases, consumers must pay either a use tax or a sales tax on items bought.

Since sales tax is usually applied at the state level, there would be no way for a state to collect taxes on goods or services purchased outside of the state. This gap in tax payment is filled in by the use tax. Most states with sales taxes also have laws in place for taxes on items that are to be used, stored, and consumed within that state, even if those items were not purchased in that state.

A special form is used to make use tax payments.
A special form is used to make use tax payments.

There is an important distinction to be made between this type of tax and sales tax. Sales tax is paid by the buyer upon the purchase of taxable goods and services, and thus the responsibility for remitting that money to the state goes to the sellers of those items. Use tax, on the other hand, is the responsibility of those who purchase the goods and services. Most states that charge this tax have a special form that a consumer may fill out to make the necessary tax payment.

It is important to note that there are occasions when a consumer may be responsible for both a sales tax and a use tax on an item. Imagine that a consumer from state A goes to state B to purchase an item. State B levies a 4-percent sales tax that the buyer pays at the time of the purchase. He then returns to state A to use the item, but state A charges a sales tax of 7 percent. The consumer must pay the difference of 3 percent between the two taxes to state A.

In some cases, a municipal tax that is included in certain towns or cities may also require additional taxes from a consumer who lives in those places if the original sales tax doesn't cover the amount owed. The practice of buying items over the Internet also often requires a use tax to be paid by customers. This is because Internet commerce usually requires that goods be shipped from one state to another.

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    • A special form is used to make use tax payments.
      By: Melpomene
      A special form is used to make use tax payments.