Use tax
From Wikipedia, the free encyclopedia
A use tax is a type of excise tax levied in the United States. It is assessed upon "tax free" tangible personal property purchased by a resident of the assessing state for use, storage or consumption of goods in that state (not for resale), regardless of where the purchase took place. The use tax is typically assessed at the same rate as the sales tax that would have been owed (if any) had the same goods been purchased in the state of residence. Typical "tax free" purchases that require payment of use tax include those done while traveling (for things carried or sent home), through mail order, or purchases via telephone or internet.
For example, a resident of Massachusetts, which has a five percent "sales and use tax" on certain goods and services, purchases non-exempt goods or services in New Hampshire for use, storage or other consumption in Massachusetts. Under New Hampshire law, the New Hampshire vendor collects no sales taxes on the goods but the purchaser/user must still pay five percent of the sales price directly to the Department of Revenue in Massachusetts as a use tax. If the same goods are purchased in a U.S. state that does collect sales tax for such goods at time of purchase, then whatever taxes were paid by the purchaser to that state can be deducted (as a tax credit) from the five percent owed for subsequent use, storage or consumption in Massachusetts.
The assessing jurisdiction may make the use tax payable annually, but some states require a monthly payment. For example, where a Vermont resident has not paid at least 6 percent sales tax on property brought in for use in the state, Vermont law requires filing a tax return (Form SU-452, and payment) by the 20th day of the month following non-exempt purchases to avoid a $50 late fee, a 5 percent penalty per month, to a maximum of 25 percent, plus statutory interest on the unpaid tax and penalties.
Typical exemptions include purchases by charitable non-profit organizations or governmental agencies, purchases for resale in commerce, and purchases via "casual sales" by individuals not in the ordinary course of business. Also note that there are thousands of tax jurisdictions in the U.S. and many have ever-changing lists of specific types of goods and services that are not taxable.
As an illustration of the complexities: a recent change in the law (April 1, 2006) now requires payment of tax on "pre-written" (not custom) software purchased and downloaded over the internet for installation and use in Massachusetts, regardless of where it originates. However, the actual use of the same software downloaded by a Massachusetts resident to a server in another state remains a non-taxed "service".
[edit] Enforcement
In most cases, the taxing jurisdiction cannot always reliably determine whether any of their residents purchased items and then brought them into the jurisdiction. This often results in the submission of any use tax payments as being on the honor of the purchaser. Other states require annual statements, filed under pain of perjury, that the resident has submitted all necessary use-tax payments. The filing of a false document is often a much more serious crime than evading tax on out-of-state purchases. The state of Connecticut Attorney General occasionally publicizes the indictment of a blatant use-tax violator and soon receives millions of dollars from other guilty parties hoping for amnesty.
A number of states have even entered into agreements in which they will allow vendors to share in the proceeds of sales taxes collected from buyers in other states who would not otherwise fall under the vendor's state tax obligation. A registered vendor is provided with tax guidelines by each state for which it will collect "sales" taxes, and may also be granted limited amnesty for sales taxes it failed to collect in the past in registered states.
