Business Cents is getting more and more questions about use tax and when this tax is owed. That means it’s time to educate and clarify this information for our small business customers.
When running a small business, there are so many things to learn! Some of the complications business owners struggle to grasp include:
- Which agencies to pay and file taxes with
- What taxes get charged for their business
- What exactly each tax is for
When a business purchases something in their home state, they pay sales tax on that item or service at the time of purchase. These taxes are for items used or consumed in running the business. A good rule of thumb follows: if you are not reselling an item to your customer, you owe use tax. Do not use your Reseller Certificate in this case. If you do not pay sales tax on an item, then use tax becomes relevant for your business.
Use tax is a tax on tangible personal property that is not subject to sales tax. Use tax is levied by most states on businesses. Like sales-tax rules, use-tax rules vary from state to state.
A buyer owes use tax on taxable items purchased for which the buyer paid either no sales tax or less than their state’s sales tax. This is the tricky part – the responsibility to file and pay this tax lies with the buyer of goods (whether for personal use or for your business). This is for items you use, give away, store, or consume in your home state without paying sales tax to your home state.
Here are some examples of when businesses in Washington State need to pay use tax:
- Goods are purchased in a state that either does not have sales tax, or has a sales tax lower than Washington’s. For example, items you purchase in Oregon that are used in Washington are subject to use tax. Items from Idaho, are subject to use tax for the difference of taxes paid (6% in Idaho and between 7.6% and 9.9% in Washington).
- Goods are purchased from someone who is not authorized to collect sales tax. For example, purchases of furniture from an individual through a Craig’s List or a garage sale, newspaper classified ad or a purchase of artwork from an individual collector.
- Goods are purchased out of state by subscription, through the Internet, or from a mail-order company. Many of these companies collect Washington’s sales tax, but if the company from which you order does not, you owe the use tax.
- Personal property is acquired with the purchase of real estate. For example, your purchase a building and along with it comes desks and chairs. The building is not mobile (cannot be moved), but the personal property (the desks and chairs) are moveable. In such a case, you will owe for the value of the desks and chairs.
A business must also pay use tax if they take something from their inventory and use it in the business, like a stationary store that uses paper in the course of their business to print reports in their business.
How do I pay use tax?
Use tax is determined on the value of the goods when they are first used in Washington State. Generally, this is the purchase price. However, a depreciated value may be determined if the goods are used outside the state for a lengthy time before use in Washington by the same person. As of June 1, 2002, use tax is also due on any freight, delivery, or shipping charges paid to the seller.
The use-tax rate is the same as your sales-tax rate. To determine the correct rate for your area, check out Washington State Department of Revenue’s (DOR) Local Sales tax Rates and their Tax Rate Lookup Tool. Use tax, unlike sales tax, is due at the rate where you first use the article, not where the sale takes place.
You can pay use tax a couple of ways:
- Pay online using the Washing State DOR’s secure online application. It guides you through simple filing steps and gives you several payment options.
- Pay via paper by completing and mailing a Consumer Use tax Return (PDF).
Note: Businesses are encouraged to report use tax for business-related purchases on their next excise tax return.
We at Business Cents are here to help you get these returns filed on a timely basis! We can file and pay both your sales tax and use tax, along with any other taxes owed to the Washington State DOR.
We recommend you keep a spreadsheet of any and all purchases where sales tax was either not paid or underpaid. We can then add these transactions to your regular filings and keep your account up to date!
Please call or e-mail us with any sales tax and use tax questions.