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Use Tax

A use tax differs from a sales tax in that a sales tax is assessed on the purchase price of property and is imposed at the time of sale; a use tax is assessed on the storage, use, or consumption of property and takes effect only after such use begins.

Another way of looking at this point is to observe that the taxable event for assessment of the sales tax occurs at the time of sale. The taxable event for assessment of the use tax occurs when possession of the property is transferred to the purchaser within the taxing state for storage, use, or consumption.

The use tax is considered supplementary to the sales tax. It ensures that purchasers who attempt to avoid the sales tax by buying outside of the area of the sales tax will still have to pay the use tax when they use the product or service they have purchased within the taxing area.

Use taxes are almost always imposed at the same rate as the sales tax. If a sales tax has already been paid on the good or service in question in the place where it was purchased, the use tax will generally not be imposed. The person using the good or service is liable for the tax, although responsibility for collecting the tax is often imposed on the seller.

Use taxes have been fought in court, particularly by mail order companies required to collect the tax. The Supreme Court has ruled that in order to collect a use tax from a business, a company’s activity must have a “substantial nexus” with the taxing state. Thus, the court ruled that a mail order company with no office in the taxing state does not have a substantial nexus with the state, and therefore, the state cannot impose its use tax.

Use taxes, by their nature, can be hard to collect, because many times purchasers of goods or services has no idea that they owe a use tax. If the state or local government entity cannot impose the tax directly, they often have no recourse in collecting the tax unless there is a separate registration requirement (as with a car).

Inside Use Tax