Understanding the Use Tax

The use tax is one type of excise tax. The use tax is based on items purchased from another state, that are used by a resident in their state of residence. If the product was purchased within the state of residence, it would have incurred a sales tax. Since the product was purchased in another state, the state where the product is used, or the state of residence of the purchaser, would expect the buyer to pay use taxes on that item.

Generally, the use tax can be assessed on any items purchased out of state, or on the Internet. However, items that are to be resold, would not be subject to use taxes. The use tax is a sale tax imposed on items that would have incurred a sales tax had the item been purchased in the state of residence. In other words, taxpayers are not responsible for use tax if the items does not incur as sales tax in their state.

Use taxes are often imposed on items used, stored or consumed in the taxpayers state of residence, when they were purchased outside of the jurisdiction. Currently, almost a third of the states include a voluntary use tax line on their tax forms. Use taxes are expected to be paid in certain circumstance on specific items. When voluntarily paying use taxes, tax payers must disclose all items purchased outside of their tax jurisdiction.

In contrast, some states assume that each taxpayer shoulders certain use taxes, based on their salary. In those states, taxpayers simply locate their salary on the use taxes table and add that amount to their tax liability. However, taxpayers that purchase an item or items above a certain threshold, must list all items and calculate the use tax on those items. The Streamlined Sales Tax Project was an effort in which merchants register and disclose all purchases made by out of state residents.

Use taxes have been the subject of many lawsuits. Many Internet retailers have been forced to turn over their records so that the government can begin to enforce the use tax on a more equal level. Most taxpayers have not been willing to volunteer their use tax responsibility amount. Many taxpayers view the use tax as unfair taxation because it often involves paying double tax on an item when an individual purchase that item in a state other than the one in which they reside. However, many taxes are imposed on more than one level, but the consumer simply does not realize it.

Certain taxes, like excise taxes on gasoline, are already included in the price. Most taxpayers are not even aware that they are paying taxes on certain items. The use tax is likely to be increasingly enforced as states struggle to decrease large deficits in their budgets. Taxpayers may find that they are responsible for past use taxes as well as late fees and interest on those taxes.

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