Sales and Use Tax Determination

Tax Professionals Resource
May 30, 2012 — 1,650 views  
Become a Bronze Member for monthly eNewsletter, articles, and white papers.

A use tax is applicable instead of a sales tax in a number of situations. It is a tax on services or goods purchased out of an individual’s state residence. It acts as a substitute to the sales tax - as a result, a person cannot legally be charged a sales and use tax on a single purchase. According to the Maine Department of Revenue, use taxes were imposed to minimize unfair competition between in-state and out-of-state retailers.


A tax professional can consult with the local Department of Revenue’s website to determine the use tax rate for calculating purposes. Often, the use tax rate is the same as the sales tax.


Here are three determining factors that influence whether sales or use taxes are applicable:


1. The materials or services bought. A use tax may be applicable as soon as you make a purchase outside of your state of residence. All tangible property and specified digital items that are purchased or rented may be eligible. For example, the North Carolina Department of Revenue can impose a use tax on books, ringtones, digital music, cassettes, compact discs, computers, electronic equipment, furniture, home décor, sporting goods and other items.

2. Method of purchase. Regardless of whether an individual purchased the item in person or via mail order, a use tax may be imposed. There are currently debates being played out in state legislation across the United States about imposing sales or use tax to online purchases. A few states have made concrete rules concerning taxing in this situation, and a tax professional may find it beneficial to consult the Department of Revenue on the matter to determine what is required of him or her. For example, the Washington Department of Revenue claims that most online companies already collect the state’s sales tax. However, if they do not, an individual is required to pay the use tax.

3. Sales tax was paid in the state where the item was sold. If a person paid the sales tax for the purchase of a service or product in the state it was sold, then a tax professional will have to compare that state’s sales tax to the tax imposed by the resident state. If the sales tax was higher in the purchase state, an individual will not be required to pay any more. However, if the sales tax is lower, the purchaser will either have to pay his or her resident state the difference or the complete use tax rate.

Tax Professionals Resource