What are Use Tax and its difference from sales tax?

 

What are Use Tax and its difference from sales tax?

There is a lot of confusion about what sales tax is and what is use tax, many cannot distinguish between the two. In this article, we will discuss the difference between both taxes and how can you pay these taxes. How can you comply with tax codes in your business to perform efficiently, effectively?

In the USA sales tax are those that are levied on the sale of goods and services within the country. The federal government imposes different kinds of sales tax on businesses and services. Sales tax is almost levied on every product that you purchase in the market. Sales and use tax have a minor difference which will be discussed in the article.

Every state imposes its taxes on goods and services. Some states ask the federal government to levy selected sales tax on the sale or lease of the specific product. They can also ask the Federal government to impose an extra sales tax in the general or selective category.

What is the Sales Tax?

Sales tax is not the one you pay when you are buying the product, for business sales tax is different. If any business is collecting sales tax then he must document every detail regarding the sales tax. They must have a record of every transaction that takes place in their daily business operation. The sales tax needs to be shown on customer receipts so it is easy to spot for state and federal authorities and auditors. Usually, sales tax is charged on the sale price of all physical private property that you sell to the customers

What Is Use Tax?

Use tax is a kind of sales tax on buying items outside your native state. These items are taxable. So, those items that are stored in the state of residence and due to which no tax was paid when the item was brought to the state of purchase, If the purchase was taxed and the product was manufactured in the state, the buyer’s state of residence, then you have to pay use tax.

Use tax and sales tax are interchangeable; however, it aims at products you buy outside of given tax control. You have to pay use taxes if you buy something from one state, then you either move, transport, or resell in another state. It protects the sales tax revenue.

Difference between Sales Tax and Use Tax

• In terms of taxable transactions, the main target of use tax is intended to close a perceived loophole. Generally, the taxing ability of a state is only within its boundaries, and this also means that a state cannot enforce its sales tax on retail sales consummated in other states. Use tax is then a complementary tax applying to the use, storage, or other consumption within the state on physical and personal property, whose purchase supposedly subject to the sales tax needed to trade, happened within the state boundaries.

• A state, however, can't make you register or collect this unless you've got a physical presence within the state. This indicates you keep an office or shop in the state or offer services there. A similar law applies to those people who conduct business through the web, so the need for uniform sales and use tax is important

Use Tax Examples

• Let’s suppose you run an online company in Michigan. You have nexus in Georgia, and Texas and you sell your product to the customer in Illinois. Because you do not have nexus in Illinois, you are not bound by law to get the sale tax from the consumer. Now the customer will pay use tax to the state of Illinois

• Another example of use tax is that suppose you sell your product to a client living in Michigan if you nexus in Michigan then you will levy the sales tax from customers. Now the customer is paying sales so they do not need to pay use tax to the state.

Summary

These terms are interchangeable but somehow confusing for many people. The example given in the article will help you to clarify the concept. Taxes are an important part of any country's economic system, without taxes the government cannot operate efficiently. Therefore, you must keep in mind to pay your taxes on time. One can also avail of tax preparation services to avoid all these confusions.