Use Tax can be tricky to understand if this is your first time running a business. In this article, we lay down the basics of what Use Tax is and how we calculate it at Ceterus.
What is Use Tax?
Use Tax is a form of Sales Tax owed to your local jurisdiction for the purchase of items that will be used, stored or consumed in your jurisdiction but on which no tax was collected in the state of purchase.
When Does Ceterus File my Use Tax?
If you have a regular or situational need to pay Use Tax, you must provide Ceterus with the Use Tax taxable amount and related information 10 days prior to the Use Tax due date. Use Tax is filed with your Sales Tax return’s due date.
How is Use Tax Calculated?
Ceterus uses the standard POS reports and/or other reports you provide to determine your sales tax payments which are associated to a specific physical location.
How Do I Know if Use Tax is Required for my Business?
Use Tax generally occurs when an item makes it to the general public or is used by your business without a Sales Tax ever being paid on it (where sales taxes are applicable).
Common examples are that you purchase supplies for resale using your resale certificate and pay no sales tax on your purchase. You then use this product in your business instead of selling it - think massage oils used on clients, food waste or food given away (100% discount, BOGO applies here) - and now the item is used and no Sales Tax was paid when you purchased it, nor when it was used. There would now be a Use Tax due on that product based on the amount you paid.
Another example is when you purchase products from another State or Jurisdiction for use in your business, but the company you purchased from does not charge you Sales Tax for your State. If you are in a State that charges Sales Tax, then you’re liable for paying Use Tax to your State. This occurs often when a retailer does not have a physical presence in your state and is not always required to charge sales tax in your state. If you use that product in your business instead of selling it as retail, and you did not pay Sales Tax when you purchased it, then you need to pay Use Tax when you use it.
Bottom line? If you did not pay Sales Tax when you bought a tangible product, and you did not sell it and collect Sales Tax from a customer, but instead you used the product in your business, then you likely owe a Use Tax on that purchase. The State/Government wants their cut - either when you bought it from your vendor, when you sell it to a customer and charge Sales Tax, or when you use it in your business without having paid Sales Tax.