Understanding Sales Tax and Use Tax
In my latest video, I explained the basics of both these taxes, how they work, and when they apply. Here’s a quick summary:
🧾 What is Sales Tax?
Sales tax is a tax charged on the sale of goods and certain services.
It is collected by the seller at the time of sale.
The seller then remits this tax to the state or local tax authority.
The rate and rules depend on the state where the sale occurs.
Businesses must register in states where they have a nexus (physical or economic presence) to collect sales tax.
🧾 What is Use Tax?
Use tax is a tax paid on the use, storage, or consumption of goods when sales tax hasn’t been collected.
It is paid by the buyer, usually in situations like:
Online purchases
Interstate purchases
Buying from sellers not registered in your state
It ensures that tax is still paid even when sales tax wasn’t collected during purchase.
✅ Why It Matters
Understanding when Sales Tax applies and when Use Tax is your responsibility can help you:
Stay compliant with tax laws
Avoid penalties or interest
Accurately report and pay taxes for both purchases and sales.