What is the difference between use tax and sales tax?

Question

My husband has just started his new business and I am confused about the two different taxes we have to report. What is the difference between sales and use taxes?

Answer 1

Sales tax is charged on taxable sales within a state. Such as when you go to a store and buy a computer in Massachusetts.

Use tax is when you purchase something in an other state and not pay sales tax or pay sales tax at a rate lower than the state where it will be used.

For example: I live in Massachusetts. they have a 5% sales tax. If I purchased a computer for $1000 in a store in MA, I would pay $50 in sales tax. If I purchased the same computer in New Hampshire (they have no sales tax), I would be subject to a $50 use tax.

If a Connecticut resident purchased the same computer in CT( 6% sales tax rate I think), they would pay $60 in sales tax. If they purchased it in MA, they would still be liable for 1% use tax The difference between the state sales tax where it will be used and the sales tax charged on the purchase.

Many states including MA, RI and CT have a line for this tax on their state income tax returns.

In business, Use tax would be required if your vendor lived out of your home state and you purchased taxable products from them.

For Example, The business owner purchases computers for his office from a vendor in another state for $10,000. No sales tax is charge because the vendor is not required to charge sales tax. The business would be responsible for the Use tax on this purchase.

Answer 2

Sales tax is paid on the value of the property purchased. Use tax is paid on the value of the property used.
The tax rate on the two is almost always identical (although it doesn't have to be.)
Imagine a computer store. They have hundreds of computers for sale--and each time one is sold, a sales tax is charged. Now imagine that the same store NEEDS A COMPUTER. They just take one off their own shelf. They'll use it, but without a USE tax, they'd never have to pay a sales tax (because it was never really sold.)
The use tax also makes certain that if you bought an item out of state (via the mail, over the phone, or you crossed the border into another state with a lower tax rate to make the purchase) you still pay the appropriate tax rate.
So think about the nature of your husbands business. Is it possible that he might take something out of inventory and "use" it? If so, he's obligated to pay a USE tax on that item. Think of the equipment that he might buy without paying sales taxes (because he has a State sales tax exemption certificate and purchased under that) but that is still put into use. Oops, you have to pay the taxes on it.
If Sales Taxes are paid on the item, a use tax shouldn't be. If Sales Taxes are not paid on an item, a use tax should be.

Answer 3

The difference is a legal technicailty, functionally they are identical.

Sales tax is collected by retailers and rendered to the state.

The Use Tax is generally assessed on used vehicles at the same rate as the general sales tax. Most states also levy use tax on goods purchased out of state but none of them have come up with an effective means of enforcing the collection of the tax except for vehicles.

Answer 4

All taxes must be paid by the end user. Lets say you pay your sales and use tax on a monthly basis, and you own a restaurant. Your sales for the month of June were 50k, you bought a oven for 2k from a supplier and he did not charge you tax because you will be using it for your business. On July 1st you must pay you state Sales tax based on the 50k that the customer has already paid you to use your product, and you then must add to that payment the sales tax for the 2k oven that you are using. Thus all taxes must be paid by the end user.

Answer 5

nicely, those solutions are close. they're all maximum staggering interior the situation of a Federal identity quantity. even with the undeniable fact that, they're incorrect interior the situation of a revenues Tax Resale quantity. NO...that's not used as a quantity to become responsive to you/employer to the state to collect revenues tax. a lot of human beings think of that having a revenues Tax quantity is comparable to a having a revenues Tax Resale quantity....yet, that's not. A Resale quantity potential that your are finding out to purchase it for resale purely and you do not might desire to pay revenues tax...yet you will might desire to collect it once you sell the article. i'm hoping this enables.