Use Tax – When to File

April 10, 2012

With the recent controversy and legal cases involving large e-commerce retailers such as Amazon, the topic of Use Tax has definitely been in the news. This has spawned many questions from taxpayers about Use Tax. What is it? When should it be paid? And, how does one file a Use Tax return?

Let’s take a closer look at what is Use Tax and what it specifically means to individual taxpayers.

Simply put, Use Tax is a substitute for sales tax. Every state which has a sales tax also has a Use Tax to minimize unfair competition between sales made in-state and out-of-state. The Use Tax rate is the same as the sales tax rate in the area where a taxpayer resides.

When Is Use Tax Applied?
Use Tax applies when sales tax hasn’t been applied to a purchase. The most common types of transactions that are subject to use tax are internet and out-of-state sales. In other words, if you buy something from an online retailer in New York, but live in California, Use Tax would be applicable if you plan to use the purchased item(s) in the state of California. The amount of tax to be paid is calculated on the purchase price. Some items may be exempt from Use Tax such as food products, prescription medicines, and goods purchased for resale.

How Do I Report Use Tax?
In most cases, individuals can pay Use Tax on their California state income tax return. However, if you are receiving over $100,000 in gross receipts from business operations per calendar year (from both in-state and out-of-state business operations) you will need to register as a “Qualified Purchaser” with the Board of Equalization and pay Use Tax directly to the BOE. You may also be required to apply for a Consumer Use Tax Account even if you do not own a business if you are regularly incurring Use Tax liabilities. The best way to determine how you should pay Use Tax is to consult with your accounting professional.

Are Purchases Made While Abroad Subject to Use Tax?
Yes, Use Tax does apply on most foreign purchases of tangible personal property. Again, there are exceptions including the following:

• The first $800 per person of property hand carried into California and reported on a single declaration.
• Merchandise purchased for resale
• Items purchased for use outside of California
• Items purchased and used outside of California for more than 90 days before entering the state
• Gifts you receive while abroad
• Purchases of food, prescriptions, eyeglasses, and other non-taxable items allowed by California sales and Use Tax law

For more information about California Use Tax, contact the experts at Wallace & Associates.