Use Tax Part 1
What You Should Know About Taxable Purchases/Use Tax Required for Your Business
Never heard of use tax? You’re not alone. It’s the same with many business owners. But in the U.S., states might fine you, regardless of whether you’ve heard about it or not.
States are coming down hard on businesses that do not pay sales tax on purchases which should have had sales tax added. This includes online purchases, some contracted services, even online subscriptions. If your state determines that a type of transaction is taxable, business owners based in that state are required to pay the tax, even if the required sales tax was not billed to them. This is the “Use Tax” part of the states’ Sales & Use Tax reporting.
Per the Texas State Comptroller’s website: “For example, if you buy a shirt through an online auction from a seller in Ohio who does not charge Texas tax, or if a New York electronics store sells you a camera through its website and does not charge Texas tax, you owe Texas use tax on the sales price of the item. Items bought in another country and used in Texas are also subject to Texas use tax.” *
Unless your company is tax exempt, you’re liable for the tax even if you don’t have a state sales tax number.
Why has use tax become such a big issue in Texas?
Since Texas doesn’t have a state income tax, taxable purchases are an important tax revenue generator. With the tremendous growth in online buying, this is a way to stabilize the state’s revenue. And the burden to pay this tax is on the end customer, not the vendor.
What to do about it?
For Texas businesses, our Be Square staff can help determine purchases that should have been taxed. We can also file the use tax on those taxable purchases for you, along with your monthly, quarterly or annual sales tax reporting requirement.
If you don’t have a Texas Sales and Use Tax Permit, a separate form is available on the Texas Comptroller’s website for purchasers who owe less than $1,000 in a year.** If you owe more, we can guide you in acquiring a Texas sales tax number, and file for you each required period, per request.
For more information on this click, Use Tax Part 2
Not a Be Square client? Contact Us to set up a free introductory call to find out if we’re a good fit for your bookkeeping and payroll needs.
*Use Tax. (n.d.). https://comptroller.texas.gov/taxes/sales/use-tax.php
**Form 01-156 Use Tax Return. Download a PDF from the above link.