What is sales & use tax?

In the United States, sales tax is used by the states and local governments to pay for state allocation including road infrastructure, educational institutions (schools), public safety, etc.

Sales tax is conducted at the state and local level meaning that each government entity creates its own laws and regulations pertaining to the administration of sales tax. Local regions meaning cities, counties, parishes, etc. typically impose sales tax as well.

46 US states, including Washington D.C (District of Columbia) have a form of sales tax imposed

Every state except for Alaska, Delaware, Montana, New Hampshire and Oregon impose sales tax. 

Despite the fact that Alaska and Montana do not have statewide sales tax, there are certain areas within these states that impose local sales tax. 

What is sales tax?

Typically a tax on the sale of a tangible personal property, select services including rentals of tangible personal property which do vary by state. Sales taxes are imposed on each sale of goods, paid by the purchaser of the goods and collected by the seller of goods and paid to the state or DOR. 

What is use tax?

Use tax is a tax that is placed on the storage, use, or consumption of an item or service which is deemed taxable and no sales tax has been paid on it. Use tax and sales tax are different tax types however, they are generally (sometimes not) collected at the exact same rate as sales tax.

What is the sellers use tax?

Sellers use tax basically meaning there is a transactional tax added as a percentage of the sales price, the same as sales tax. The key difference is that this tax is paid by an out-of-state seller to the state where the sale happened. Keep in mind that sellers use tax is only applicable to sellers that are not based in the state where the transaction happened.

What is consumer use tax?

Consumer tax is a type of use tax where the buyer pays the tax rate. This tax is paid to the buyer and sent directly to the state department of revenue or taxation. This is accomplished by submitting a use tax return and/or an income tax return to the state each year.

Examples of transactional types predisposed to consumer use tax:

• Items purchased online from vendors who have not met nexus requirements and are not required to register, therefore sales tax is not applied.

• Items purchased via mail-order from businesses that are either not registered or not required for sales tax collection to the delivery state.

• Transactions from either an in-state or out-of-state business that is required to collect sales tax and doesn’t. 

• A buyer allows for an in-state vendor to use a resale or exemption certificate and the transaction is actually taxable.

If you’re interested in learning more about use tax and the various use tax types, connect with Taxually today and we’d be happy to assist you!

FAQ

What is Transaction Privilege Tax? 

Also known as TPT, it’s a tax type imposed directly on the seller and is not based on individual transactions yet either the amount or volume meaning income of sales of business enacted by individuals of the business and their enterprise activities.

Arizona is the only state that has a Transaction Privilege Tax, they do not have standard sales and use tax.

It’s also important to note that although the TPT is imposed on the income from retail sales and is due from the seller, it can be passed on to be paid by the consumer.