Consumers often make purchases online and therefore often times aren’t charged tax on these orders. However, this does not mean these purchases are tax free. In most states, these purchases are subject to use tax. If your state has a sales tax rate, then use tax is due for purchases you made that were not charged tax. What is use tax? This tax is charged on the use, storage or consumption of property. The use tax rate is the same as the sales tax rate for your location.
If a purchase you made online would have normally incurred sales tax when purchasing in a store, you must pay the use tax if you were not charged tax on your order. Use tax must also be paid if you made a purchase with the intent to resell the items, but used it for your business instead. For instance, if a hair salon purchases items for resale but then uses a bottle of shampoo in the salon, it must pay use tax on this item.
So how do you pay this tax? There are a few ways this can be done. If you are a business required to file sales tax returns, use tax can be added on an additional line and paid with the tax collected on sales during the reporting period. If purchases were made personally for your household, they can be included on your personal income tax return. Some businesses who do not have to file sales tax returns but have incurred use taxes due may need to file a return specific to use tax. For instance, in California, businesses who gross over $100,000 in sales are “Qualified Purchasers” and must file a use tax return by April 15th each year whether any tax is due or not.
Make sure if you are making purchases subject to tax but the tax was not charged that you report this use tax on the proper form. Failure to do so may result in penalties and interest on top of the tax already due.
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