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The Grinch Who Stole Tax-Free Shopping: Use Tax

  • Nov 21, 2014 | Gail Cole

 Let it begin.

I took a walk with the family through town last night and noticed that several stores were already featuring Christmas displays. My children were outraged: “But it’s not even Thanksgiving! What about the Thanksgiving decorations?”

The kids come by their outrage honestly, but I also have sympathy for small town stores trying to survive in this fast-paced, online-mobile shopping world. And while Thanksgiving spending is expected to grow to $8.4 billion this year (mostly food and drink), spending on Black Friday and the following weekend is expected to reach $36.7 billion. Cyber Monday sales could top $2.1 billion. No wonder retailers want a piece of that. (Retailers: Get in the spirit with this story of holiday shopping, ecommerce and good will).

Online sales tax

Serious shoppers are looking to save on Black Friday and Cyber Monday sales. The savviest are also looking to save on sales tax by shopping online.

Internet retail giant Amazon.com is collecting sales tax in more states this holiday season than it did in 2013, but it still doesn’t collect sales tax in 27 states. And although more small online sellers are collecting sales tax thanks to the growth of affiliate nexus laws (whereby a connection to a state is established through online referrals from an in-state business), many are still not obligated to collect sales tax in states where they do not have a physical presence.

That Grinchy old use tax

“We hate to be the ones to ruin the holiday fun, but remember that whichever way you shop [in store or virtually], both carry a tax: sales tax or use tax."

That’s from the Indiana Department of Revenue use tax to the department. In Indiana, as in many other states, there is a line for use tax on income tax returns.

The Louisiana Department of Revenue has a similar reminder on its website: “Online” doesn’t mean “tax-free.”  It points out that internet shopping is not the only situation that can trigger use tax: catalogues and television shopping networks can, too. Lousiana taxpayers may report use tax on their income tax returns or on the state’s Consumer Use Tax return.

The Texas Comptroller underscores two additional use tax points:

  • Use tax is owed on purchases made in another country (as in neighboring Mexico).
  • Local use tax is due when a Texas business located in a town with no local sales tax sells to a consumer from a town with a local sales tax. The seller collects the state sales tax but the consumer owes the local use tax.

Every state that has a sales tax has an equivalent state use tax. Many local tax jurisdictions also impose an equivalent use tax, although some do not or impose a reduced rate of use tax (as the Texas Comptroller well knows). Take the time to know what you owe—especially if you are a business.

Simplify sales and use tax management and remit what you owe, when you owe it. Learn more.

photo credit: Gordon Marino via photopin cc

Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.