Understanding Use Taxes

If you own a business, then you may have to pay something called a “use tax.” These taxes, however, do not exist everywhere, so if you have never heard of a “use tax,” you may be confused about exactly what it is and how it works. Fortunately, though, these taxes really aren’t that difficult to understand.

Use Tax and Sales Tax: Not One and the Same    

To start off with, people are often confused in thinking that use taxes and sales taxes are the same thing. This is not the case. Sales taxes are more common and are taxes paid on personal property.

Use taxes, on the other hand, are excise taxes that are enacted when a property is first used within a given state.

How Use Taxes Affect Businesses

As a business owner, your personal property may be subject to a use tax. Some common reasons for use taxation that you may encounter include:

·         Resales

·         Business items that you take out of inventory for a taxable purpose

·         Some purchases for which the sales tax was less than the sales tax in another state

·         If taxes have not been paid on supplies, fixtures, and/or equipment from an out of state vendor, at the time of the purchase of an existing business, or when items are purchased over the internet

·         Your business manufactures items for its own use

States without Use Taxes

As mentioned earlier, not all states require a use taxes. The few that do not include:

·         Alaska

·         Delaware

·         Montana

·         New Hampshire

·         Oregon

In these states, however, use taxes may be enacted on certain items and/or in certain localities, so never just assume you are exempt from all use taxes.

And, if you live in a state where use taxes are in place, make sure you fully understand how they work and that you have paid all taxes that you owe for this reason.