What’s the Difference Between Sales Tax and Use Tax?

If you find sales and use tax compliance confusing (and tedious), you’re not alone. But it’s important for small business owners, and consumers, to understand the difference between sales and use tax to reduce the risk of facing a potentially costly audit.

Leading sales tax automation software company, Avalara, defines sales tax as an “intrastate transaction collected by the seller on the gross receipts from a retail sale.” In other words, the tax consumers pay when they go out to eat or shopping.

Use tax, on the other hand, relies upon self-assessment, and there are two types—seller’s and consumer.

Seller’s tax is required when there is an “interstate transaction, where the seller is compelled to collect tax because of “nexus,” according to Avalara.

The second type of use tax, consumer use tax, must be paid on “purchases of equipment and supplies from out-of-state for use in business.” For example, say Coffee Shop X gets a shipment of coffee cups but allocates a box for complimentary employee use—consumer use tax would need to be paid on that box of materials.

Source: http://www.manta.com/resources/tip-of-the-day/whats-the-difference-between-sales-tax-and-use-tax/?utm_medium=Email_Marketing&utm_source=Newsletter&utm_campaign=TOTD&utm_content=TOTD_NewDesign2015&utm_term=18137&su=hq344mgu9vl41l