What is Use Tax | Consumer Use Tax
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- เผยแพร่เมื่อ 8 ก.พ. 2025
- In this video, Interstate Tax Strategies of Atlanta, GA (770-985-9573) explains what is use tax, and discusses the consumer use tax obligations multistate companies have on the purchases they make and the challenges use tax can present.
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Consumer Use tax is the tax paid directly to the state by the purchaser of taxable property or taxable services when the vendor does not charge tax at the time of sale. Just because your vendor does not charge you tax on their invoice does not always mean the transaction is non-taxable. Under the laws of most states, if the retailor is required to charge you sales tax on the particular sale then the same sale is subject to use tax if an out-of-state vendor fails to charge you the tax on their invoice. If the out-of-state retailor does not charge you tax, then you must voluntarily pay use tax on the purchase price of the property. If your company only purchased taxable items from in-state suppliers then you may have no real use tax issue. However, if you purchase items from suppliers located throughout the US or even internationally, then your business may have a use tax remittance obligation. When companies are audited, use tax is one of the major areas where tax assessments are made. Some items are not subject to consumer use tax. First, if the purchase would not be taxable if the item were purchased from an in-state vendor then it will not be subject to use tax if it’s purchased from an out-of-state vendor. This would include purchases of inventory for resale and the purchase of other statutorily exempt property. If your company only operates in one state then use tax may not be that complicated. However, if your business operates in multiple states and each location purchases from different out-of-state vendors then use tax can become very complicated. If vendors don’t charge sales tax in the states where they send the property then you must determine whether the purchase is taxable in the state to where it is shipped and that accrue and pay use tax on the correct tax base of the property purchased.
The tax base for use tax is the same as for sales tax. If sales tax is due on shipping charges or other presale services then use tax will also be due on those charges. In most states the tax rate for use tax and sales tax are the same. However there are some exceptions to this rule so you need to be alert so that you use the correct use tax rate. One area where companies get caught for unpaid use tax is in the withdrawal from inventory items for use and not for resale. When your company purchases merchandise for resale, no tax is paid at the time of purchase. If you don’t sell the property but convert it to a taxable use then you must pay use tax on the cost of the property withdrawn from inventory and consumed. This may include purchases by companies that are both retailors and contractors or companies that use inventory for items to be donated or for property taken out of inventory for research and development or property given to consumers for use at no charge. Use tax can be challenging for retailors who offer a ‘buy one get one free’ promotion because many states will consider the free item to be subject to use tax.
Capital improvements to real property also pose a challenge to use tax determination. In most states the contractor is responsible for paying tax on the items they purchase for use in a construction or remodeling project. However, there are some situations where the project may not qualify as a capital improvement and may be considered a real property repair which can be taxable in many states. If the contractor does not charge tax properly on these items then your business may have a use tax payment responsibility on the cost of these real property repair materials.
The points I mention in this video just scratch the surface about consumer use tax. Depending on your business and the states in which you operate use tax can be complication. Many auditors take advantage of this complexity and make a special effort to find transactions that are subject to use tax in their state. Use tax can become very complication when multistate services are involved such as data processing, software as a service, and information services which are taxable in several states. If you have questions about your company’s use tax obligation or are under audit currently, please contact me for a no-cost, 30-minute assessment of your situation. You can contact me at our website: salestaxstrategies.com
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Well done, and clearly articulated. Thanks.
Great video! Thank you!
It is sad that taxation has to be so complicated in the USA.
I'm so confused, I own an LLC buying goods here in the US ang selling International. So now How much I'm going to pay for use tax if I sold worth of $10,000 of item? My business located in Florida and selling goods Overseas.
I'm an artist. I purchase frames online to be included with the finished artwork I sale (commissioned pieces). Do I pay use tax on those frames?
Gonna pay him for his knowledge? My opinion is worth nothing but would be that if you collect sales tax on your finished artwork the component part may not be a taxed item. But... maybe you should be paying someone for their knowledge?