US Use Tax

Use Tax is a self-assessed and declared levy on US consumers and businesses when they buy goods or services from out-of-state providers.  It is the mirror of US Sales Taxes, which are due on purchases by a consumer in their home state but charged and levied by the retailer.

Use Tax is a way of ensuring that there are no tax benefits to US consumers from shopping outside of their home state, and is aimed at online, catalogue and telesales in particular.

Use Tax rates are as per the Sales Tax Rates of the shopper’s home state.  Certain basics, including foodstuffs and medicines, are exempt from Use Tax.

For the most part, the consumer is required to calculate, declare and pay the applicable tax of their resident state.  Generally this is done on a quarterly basis – although some states now require a declaration on a monthly basis.  Businesses have to complete a special form to declare any Use Tax with their home state.

There are usually late payment fines, charged as a % per month of the overdue tax.  The penalty rates vary between 5% and 10%.

Increasingly, in order to combat non-compliance and poor revenues, states have started to include boxes in personal annual state tax returns to declare any purchases and due tax.  Neighbouring states are also co-operating to share information on the movement of goods across their borders to identify undeclared transactions.