What is Use Tax?


Most of us know what sales tax is. It's that tax you pay on just about every purchase you make. Unless you are lucky to live in one of those states that does not have one - Oregon, Alaska, Delaware or Montana. I live in the San Francisco Bay Area of California and our sales tax ranges from 8.25% to 9.75%. Ouch! Over a period of a year, that amount can really add up.

But what is use tax? It is a tax imposed on purchases where no sales tax was collected at the time of purchase, but normally would have been collected for purchases in ones home state of residence.

Therefore if you are in a state that collects sales tax on purchases, you are required by the State Board of Equalization to pay a "use tax" on all your purchases where you did not pay sales tax, but consumed, enjoyed or stored this purchase.

Example: You are a thrifty business owner who lives in California but buys your printing supplies online from a retailer based in Oregon and they do not charge you sales tax on those purchases. You think you are being savy saving ALL that money on sales tax. After all, you go through thousands of dollars in printing supplies each year. Well, by IRS standards, you are required to pay a "Use Tax" on those purchases. 

As your bookkeeper, you should keep me informed of any purchases throughout the year that may require you to report a use tax. Not doing so, can you cost you big if you were to be audited by the IRS.

Feel free to reach me by email if you have any questions pertaining to the use tax.




The Modern Keeper, LLC.