Most of you have heard the term “sales and use tax.” The sales tax part is pretty easy to understand. But what about the use tax? I’m willing to bet that just about all of us have incurred use tax at least once in our lives. However, in terms of reporting and paying that tax, I’m thinking that a fraction (and a small one!) of us have met that particular requirement.
If you live anywhere near a few select states like Oregon, Delaware, Montana or New Hampshire, you’re probably aware that they don’t charge a state sales tax on sales of goods. Even living in British Columbia we were well-aware that Oregon had no state sales tax – because it was heavily featured in targeted advertising. But what wasn’t advertised was the obligation of consumers to report those purchases on a use tax return in their home state and to pay the corresponding sales tax, just as if those purchases had been made down the road, instead of across state lines. The idea behind use tax was to make sure that your home state didn’t miss out on the money you would have spent, if you hadn’t been lured away by the promises of lower prices and a tax break in another state.
So what happens if you don’t declare the use tax? Well, most of the time the answer is nothing. My husband meets regularly with the head of Nevada Taxation, who freely admits that almost no-one who shops in Oregon or elsewhere actually sends in their use tax. However … Nevada, and any other state for that matter, could play hardball if it wanted to. In a state level audit (which are often tougher than federal ones!) use tax is one of the areas that auditors will focus on – for exactly this reason. Something to think about, next time you are tempted to cross the state line to save some money.