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What is Use Tax?




Go To Great Panes, Kathryn Maloney ©2011-2013
This post is copyrighted–you do not have permission to repost this content elsewhere but you are welcome to link to it if you’d like to share the information.


Many buyers think that their online purchases are tax exempt, but if their state has sales tax when they purchase locally, they might be mistaken. It’s a common misconception and states are starting to crack down on internet purchases.

For states with sales tax there is generally a complimentary tax that buyers should be paying called use tax:

  • Use tax is owed by individuals & businesses for items purchased without having paid sales tax that would have had sales tax on it if bought locally. (In some states that also includes tax on the shipping & handling, downloadable goods, services…)
  • Ex: Bought a book online, but the seller didn’t collect sales tax like they would have if you bought it at the local book shop? You owe use tax to the state for that transaction.


    Ex: Bought something for your business that wouldn’t qualify for exemption from sales tax if purchased for your business locally, and the seller didn’t collect sales tax? Then your business owes use tax to the state for that transaction.


    Each state decides what is and isn’t taxable for personal use and for your business use, so the rules about what you’ll owe use tax on varies from state to state–be sure to get the details straight from the state (links to official state web pages here).

  • Use tax is payable by the buyer directly to the state.
  • Many states now allow you to pay the use tax you owe on your state income tax forms in April. You can also you fill out a use tax form reporting the amount you spent that you didn’t pay sales tax on, and send a check with that form to the state with the money to cover the use tax due.


    Links to the forms to pay use tax for many states can be found on the forms & publications pages of your state’s website. Links to many of those are here: Sales Tax-Business Registration


  • Use tax is usually the same rate as sales tax.
  • If that book was $10.00 & your state (and perhaps local) sales tax is 8%, you would have paid $10.80 if you bought it locally. You probably need to remit $.80 as use tax to the state. It’s best to get the details from your state to be sure you are doing it right–some states also tax shipping costs.


  • Use tax is not a new tax–it has been around in most states for decades.
  • Use tax isn’t new, it’s just that until the internet most people didn’t do so much distance-purchasing, so the topic isn’t much talked about.


    In short…:


    Just because you bought it online doesn’t make your purchase tax exempt.

    Use tax is what you owe your state when you should have paid sales tax but didn’t. :)



    Go To Great Panes, Kathryn Maloney ©2011-2013
    This post is copyrighted–you do not have permission to repost this content elsewhere but you are welcome to link to it if you’d like to share the information.

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