Use Tax Definition and Legal Meaning
On this page, you'll find the legal definition and meaning of Use Tax, written in plain English, along with examples of how it is used.
What is Use Tax?
(n) Use tax is levied when the products are purchased from a different state paying the sales tax to that state. This tax compensate the state where the goods are finally put to use, the loss it has suffered because of the purchase from a different state.
History and Meaning of Use Tax
Use tax was introduced in the United States as a complement to sales tax, with the aim of ensuring that sales occurring beyond the jurisdiction of the taxing state also contribute to its revenue. The tax was first adopted by California in 1935, and now almost all states have it. Use tax is levied on tangible property purchased from a seller who is not required to collect sales tax in the state where the product is used, stored or consumed. Often, use tax is imposed on goods that were purchased in another state with a lower sales tax rate or no sales tax. For example, if you purchase a TV from a retailer located in a state that does not have a sales tax but will use it in a state that does, you will owe use tax.
Examples of Use Tax
- Alex purchases a new laptop from an online retailer located in a state with a lower sales tax rate and has it shipped to his home state. He must pay use tax at the rate of his home state when he files his annual tax return.
- Mary buys a boat from a dealer in another state and brings it home. As she is required to register the boat with her state, she must pay the use tax on its purchase price.
- John has a business in Seattle, and he purchases a new delivery truck from a dealer in Oregon without paying sales tax. Later he used that truck in the state of Washington for the company's transportation purposes. He must pay the use tax on the truck's purchase price, based on the applicable tax rate in his Washington State.
Legal Terms Similar to Use Tax
- Sales Tax: Sales tax is a tax applied to the sale of tangible personal property sold at retail, by a party within the state where the purchase occurs.
- Value Added Tax (VAT): VAT is a consumption tax levied by the European Union on goods and services.
- Excise Tax: Excise tax is an indirect tax levied on specific goods, such as fuel, tobacco, and alcohol.