Use Tax: What is it and Why Does it Matter?

Have you ever noticed how sometimes we hear a phrase so often that we don't really think about what it means? "Sales and use tax" is one of those phrases that we've probably all heard before, but have you ever stopped to think about what "use tax" actually means? While most of us are familiar with "sales" tax, "use" tax is a concept that often gets overlooked or misunderstood.Let's take a moment to give "use tax" the attention it deserves and learn more about it.What is Use Tax?Use tax is officially defined as the tax on the use, consumption, or storage of a taxable item or service on which no sales tax has been paid. It is required to be paid by the consumer in cases where the seller does not collect sales tax. How Use Tax WorksThe use tax is a form of taxation that applies to specific goods and is charged by a consumer's home municipality or state. Unlike sales tax, which is typically applied to all goods and services, the use tax is only charged under certain circumstances.Here are some common instances where use tax is charged.When a buyer purchases goods from an out-of-state seller who does not charge a sales tax.If you're a professional and you buy goods for your trade in an area where sales tax doesn't apply but you plan to use those goods in an area where sales tax is charged, you might be responsible for paying a use tax.If a buyer purchases items from a seller outside of their home jurisdiction and the seller doesn't charge sales tax, the use tax may be charged if the customer intends to use or store the goods in an area where sales tax is applicable.Use tax is a complementary tax; it’s not charged if sales tax is charged. The use tax rate is typically the same as the local sales tax rate, but this also varies per state. It is left up to consumers to calculate and pay use taxes, which makes it challenging to enforce. However, a resident who does not pay use tax may be subject to fines, interest, and penalties.