Businesses Should Be Aware of States' Use Taxes

Use taxes — i.e., taxes imposed by states in place of sales taxes — are often overlooked. Be sure your business is not hit with an unpleasant surprise in the form of unexpected enforcement of use tax liability.

Here is how use taxes work:

Example: XYZ Co., located in State A, purchases equipment from a Web-based company located in State B. XYZ does not pay any sales tax on the transaction. XYZ Co. may be liable for a use tax, payable to State A, depending on the laws of State A. Had sales tax been paid on the purchase, use tax would not be owed.

TIP: When making out-of-state purchases, keep receipts showing that sales tax was paid. If no sales tax is paid on an out-of-state purchase, be sure to stay informed as to whether use tax is owed to your state on the purchase.

Note: There may be exemptions from use tax liability under certain circumstances.