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Sales Tax versus Use Tax: What is the Difference?

Benjamin Kluwgant

Director Of Business Development

Understanding Sales and Use Taxes

Sales tax and use tax  are both taxes imposed on the sale or use of tangible goods within a state or municipality. While they are similar in nature, it is important to understand the key distinctions between the two.

Definitions:

Sales Tax

A sales tax is collected by the seller at the point of sale and remitted by the seller to the state. It is  based on the retail price of taxable  goods and services purchased within a state or locality.

 

Use Tax

A use tax is imposed on the storage, use, or consumption of taxable goods or services  purchased outside a state but brought into the state for personal or business use. It is  designed to prevent a sales tax “loophole” where people might buy goods in a state with no sales tax and use them in a state with a sales tax.

Differences in Collection: Sales tax is collected by the seller, while use tax is typically self-reported by the consumer.

Differences in Application: Sales tax applies to purchases within a jurisdiction, while use tax applies to purchases outside a jurisdiction that are brought into the jurisdiction for use.

Navigating Sales and Use Tax Compliance

Staying compliant with sales and use tax laws can be difficult, especially for multi-state business. It is  advisable to consult with a tax professional or your state’s tax department for guidance and to ensure compliance and accurate reporting.

By understanding the basics of sales and use tax, you can better navigate the multi-state tax landscape and ensure compliance with relevant laws.

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