What is use tax?
Use Tax is imposed on used, stored, or consumed taxable goods when no sales tax has been paid.
It is usually applied to out-of-state purchases.
Purpose
The Use Tax ensures that in-state and out-of-state sellers are treated equally, preventing local businesses from being disadvantaged by the sales tax system.
Applicability
The Use Tax is applied to out-of-state purchases, including online orders, mail-order items, and goods bought while traveling, if sales tax was not paid at the time of purchase
Compliance requirements
Reporting:
- Individuals: Use tax is reported and paid through income tax returns
- Businesses: Use tax is reported and paid either through a specific line item under sales tax returns or a separate use tax form provided by the state
Maintaining accurate records of out-of-state and online purchases is essential for proper reporting and payment
Audits:
Businesses may undergo audits by Department of Revenue to verify their compliance with use tax reporting regulations. While audits can also occur for individuals, they are less frequent.
Economic nexus:
Following the Supreme Court's ruling in South Dakota v. Wayfair, Inc., Department of Revenue can mandate sales tax collection from marketplace facilitators and remote sellers if they meet specific economic thresholds, improving use tax compliance.