What is a Use Tax?

Many states have enacted use taxes as substitute for sales tax. Each state which has a sales tax also imposes a use tax in order to tax goods made and purchased out of state but for which you have not paid your state's sales tax. Your state's use tax rate is generally the same as its sales tax rate and is a percentage based on the purchase price of the item or goods. The tax acts to ensure that you pay tax on goods you purchase from outside of your state and to ensure that that unfair competition between goods made in your state and goods made outside of your state is kept to a minimum.

Use Tax Is Not Excise Tax

Don't confuse use tax with excise tax. An excise tax is a tax levied against the manufacture and distribution of certain goods, activities or commodities which may be considered luxury items or items that are quickly consumed. Excise taxes can be levied against such products and activities as tobacco, gasoline and gambling, and can include environmental and communication taxes. Excise taxes are paid before the sale of the item and the cost of the tax is passed on to the buyer, thus differentiating excise tax from use tax. You pay for the cost of excise tax indirectly. Use tax, on the other hand, is a tax you should pay directly for good purchased outside of your home state.

Items Subject to Use Tax

Things you buy online and goods you purchase from outside your state are the two most common types of purchase subject to a use tax. You cannot escape your state's sales tax merely by purchasing from outside its borders. However, is you paid the state sales tax of the state in which you made the purchase, you may not be subject to your state's use tax. You should become familiar with your state's regulations regarding use tax to be certain. Use tax applies to common online purchases, such as books, clothing, music and computer products. Items like food products, magazines and newspapers are generally exempt from use tax. You may also pay use tax if you have your own business and you withdraw goods from your business's inventory for your own use, such as computer equipment, office supplies and janitorial supplies.