Use tax is a type of excise tax imposed on both businesses and individuals. Generally, you are supposed to pay use tax if you purchase an item without paying your home state's sales tax and you use, give away, store, or consume that item in your home state. This might happen in these types of situations:
- You buy something in another state and bring that item into your home state.
- You buy something from someone who is not authorized to collect sales tax. For example, you buy furniture from an individual through craigslist or a newspaper ad.
- You purchase an item by subscription, through the Internet, or from a mail order catalog company without being charged sales tax.
- Personal property (like furniture) is acquired with the purchase of real estate.
- You distribute property within a state for promotional purposes (for example, you send a catalog into a state).
How Much Do I Pay and When?
Use tax is usually paid at the same rate as the state's sales tax. For individuals, use taxes are typically reported and paid with your state income tax return. Businesses may need to file a special sales and use tax return with their state’s tax authority. Sometimes individuals will also need to file a special sales and use tax return for larger transactions such as vehicle purchases that are subject to use tax.
Some states allow deductions for sales taxes paid to other states on the items purchased. There may also be some items or transactions that are exempt from use tax. Common exempt items include food and prescription medications. Purchases made by government agencies and nonprofit organizations are generally exempt as well.