So what is use tax … and are you supposed to be paying it?!?
A use tax is a type of excise tax which is basically the flip side of sales tax. Here in Pennsylvania, if I buy $100 worth of office supplies at the local Staples, I’ll pay $6 (or 6%) in sales tax, for a total of $106. If I buy those same supplies online from an internet store, however, there is a chance that they won’t charge me any sales tax. In this circumstance, the Commonwealth of Pennsylvania expects me to pay that $6 to them anyway. When it is turned over by the purchaser instead of the retailer, that $6 is termed “use tax” — a tax on the use or consumption of goods that should have had sales tax charged on them.
As a business owner, you should review each of your purchases and see if you might have a use tax liability. Several states are increasing their enforcement efforts and auditing business which they suspect might be dodging their use tax liability. Here in Pennsylvania, a use tax audit that turns up unpaid taxes will result in penalties and interest that could exceed 30% of the tax due PLUS the unpaid tax!
To find out if your home state expects you to be turning over use tax, check out the handy map at SalesAndUseTax.com.
Deb Howard Greenleaf, EA, CEO and Principal, of Greenleaf Accounting Services provides virtual accounting and bookkeeping services and specializes in financial management to consultants, coaches, solo professionals, and other small business owners across the US. Deb is an Enrolled Agent (EA)—an IRS-licensed tax professional—and specializes in small businesses and entrepreneurs filing Schedule C or as an LLC. As an Advanced Certified QuickBooks ProAdvisor, Deb spends her day in QuickBooks Online and specializes in providing QBO support.