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Encyclopedia > Use tax
Taxation in the United States

This article is part of the series:
Politics and government of
the United States
Taxation in the United States is a complex system which may involve payment to at least four different levels of government. ... The Great Seal of the United States, obverse side. ... Federal courts Supreme Court Circuit Courts of Appeal District Courts Elections Presidential elections Midterm elections Political Parties Democratic Republican Third parties State & Local government Governors Legislatures (List) State Courts Local Government Other countries Atlas  Politics Portal      Politics of the United States takes place in a framework of a presidential republic...


Federal taxation
History
Internal Revenue Service
Tax Court  ·   Tax forms
Income tax  ·   Payroll tax
Alternative Minimum Tax
Estate tax  ·   Excise tax
Gift tax  ·   Corporate tax
Capital gains tax
State & local taxation
State income tax
Sales tax  ·   Use tax
Property tax
State tax levels
Federal tax reform
FairTax  ·   Flat tax
Tax protester arguments
Constitutional
Statutory  ·   Conspiracy

Part of the Taxation series
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A use tax is a type of excise tax levied in the United States. It is assessed upon otherwise "tax free" tangible personal property purchased by a resident of the assessing state for use, storage or consumption of goods in that state (not for resale), regardless of where the purchase took place. The use tax is typically assessed at the same rate as the sales tax that would have been owed (if any) had the same goods been purchased in the state of residence. Typical purchases that require payment of use tax include those done while traveling (for things carried or sent home), through mail order, or purchases via telephone or internet. Taxation in the United States is a complex system which may involve payment to at least four different levels of government. ... Tax rates around the world Tax revenue as % of GDP Part of the Taxation series        The history of taxation in the United States began when it was composed of colonies ruled by the British Empire, French Empire, Spanish Empire. ... Seal of the Internal Revenue Service Tax rates around the world Tax revenue as % of GDP Part of the Taxation series        “IRS” redirects here. ... Seal of the United States Tax Court. ... Seal of the Internal Revenue Service Tax forms in the United States are used by taxpayers and tax-exempt organizations to report financial information to the Internal Revenue Service (IRS). ... The United States imposes an income tax on the taxable income of individuals, corporations, trusts, decedents estates and certain bankruptcy estates. ... The Federal Insurance Contributions Act (FICA) tax, a kind of payroll tax, is a United States employment tax imposed in an equal amount on employees and employers to fund federal programs for retirees, the disabled, and children of deceased workers. ...        Alternative Minimum Tax (AMT) is a tax system that is part of the federal income tax system in the United States. ...        The estate tax in the United States is a tax imposed on the transfer of the taxable estate of a deceased person, whether such property is transferred via a will or according to the state laws of intestacy. ...        Look up Excise tax in the United States in Wiktionary, the free dictionary. ... Inheritance tax, also known in some countries outside the United States as a death duty and referred to as an estate tax within the U.S, is a form of tax levied upon the bequest that a person may make in their will to a living person or organisation. ...        Corporate tax in the United States is a tax on the taxable income of a C corporation or an entity taxed as a C corporation. ... Tax rates around the world Tax revenue as % of GDP Part of the Taxation series        In the United States, individuals and corporations pay income tax on the net total of all their capital gains just as they do on other sorts of income, but the tax rate for individuals is... Taxation in the United States is a complex system which may involve payment to at least four different levels of government. ... State income tax is an income tax in the United States that is levied by each individual state. ... Tax rates around the world Tax revenue as % of GDP Part of the Taxation series        A sales tax is a tax on consumption and is normally a certain percentage that is added onto the price of goods or services that are purchased. ... Property tax, millage tax is an ad valorem tax that an owner of real estate or other property pays on the value of the property being taxed. ... State tax levels indicate both the tax burden and the services a state can afford to provide residents. ... Tax reform is the process of changing the way taxes are collected or managed by the government. ... Throughout this article, the unqualified term dollar and the $ symbol refer to the United States dollar. ... A flat tax, also called a proportional tax, is a system that taxes all entities in a class (typically either citizens or corporations) at the same rate (as a proportion on income), as opposed to a graduated, or progressive, scheme. ... Tax protester arguments are a number of theories that deny that a person has a legal obligation to pay a tax for which the government has determined that person is liable. ... Tax protesters in the United States make a number of statutory arguments that the assessment of the income tax in the United States violates the statutes enacted by the United States Congress and signed into law by the President. ... Tax protester conspiracy arguments are arguments raised by tax protesters that assert that the imposition of the income tax in the United States is the result of some kind of illicit conspiracy. ... Image File history File links This is a lossless scalable vector image. ... Image File history File links This is a lossless scalable vector image. ... Image File history File links This is a lossless scalable vector image. ... Image File history File links Flag_of_Germany. ... Image File history File links Flag_of_Hong_Kong. ... Image File history File links Flag_of_India. ... Image File history File links Flag_of_Indonesia. ... Image File history File links Flag_of_New_Zealand. ... Image File history File links Flag_of_Ireland. ... Image File history File links Flag_of_Russia. ... Image File history File links Flag_of_Singapore. ... Image File history File links Flag_of_the_United_Kingdom. ... Image File history File links This is a lossless scalable vector image. ... Image File history File links European_flag. ... Comparison of tax rates around the world is a difficult and somewhat subjective enterprise. ... This table lists OECD countries by total tax revenue as percentage of GDP (as of 2005). ... An excise is an indirect tax or duty levied on items within a country. ... A sales tax is a consumption tax charged at the point of purchase for certain goods and services. ...


For example, a resident of Massachusetts, which has a five percent "sales and use tax" on certain goods and services, purchases non-exempt goods or services in New Hampshire for use, storage or other consumption in Massachusetts. Under New Hampshire law, the New Hampshire vendor collects no sales taxes on the goods but the purchaser/user must still pay five percent of the sales price directly to the Department of Revenue in Massachusetts as a use tax. If the same goods are purchased in a U.S. state that does collect sales tax for such goods at time of purchase, then whatever taxes were paid by the purchaser to that state can be deducted (as a tax credit) from the five percent owed for subsequent use, storage or consumption in Massachusetts. (Clarifying Note: With few hair-splitting exceptions, no state's vendors will charge the native sales tax on goods shipped out of state. New Hampshire vendors, however, do not omit tax because something was shipped to Massachusetts or some other state; rather, they omit sales tax because New Hampshire does not impose a sales tax in the first place.) Official language(s) English Capital Boston Largest city Boston Area  Ranked 44th  - Total 10,555 sq mi (27,360 km²)  - Width 183 miles (295 km)  - Length 113 miles (182 km)  - % water 13. ... Official language(s) English Capital Concord Largest city Manchester Area  Ranked 46th  - Total 9,359 sq mi (24,239 km²)  - Width 68 miles (110 km)  - Length 190 miles (305 km)  - % water 3. ... Within the Australian, Canadian, United Kingdom, and United States tax systems, a tax credit is an item which is treated as a payment already made towards taxes owed. ...


The assessing jurisdiction may make the use tax payable annually, but some states require a monthly payment. For example, where a Vermont resident has not paid at least 6 percent sales tax on property brought in for use in the state, Vermont law requires filing a tax return (Form SU-452, and payment) by the 20th day of the month following non-exempt purchases to avoid a $50 late fee, a 5 percent penalty per month, to a maximum of 25 percent, plus statutory interest on the unpaid tax and penalties. Official language(s) None Capital Montpelier Largest city Burlington Area  Ranked 45th  - Total 9,620 sq mi (24,923 km²)  - Width 80 miles (130 km)  - Length 160 miles (260 km)  - % water 3. ... Look up Tax return in Wiktionary, the free dictionary For tax returns in the United States see Tax return (United States); for tax returns in Canada see Tax return (Canada). ...


Typical exemptions include purchases by charitable non-profit organizations or governmental agencies, purchases for resale in commerce, and purchases via "casual sales" by individuals not in the ordinary course of business. Also note that there are thousands of tax jurisdictions in the U.S. and many have ever-changing lists of specific types of goods and services that are not taxable. A charitable organization (also known as a charity) is a trust, company or unincorporated association established for charitable purposes only. ... A non-profit organization (abbreviated NPO, or non-profit or not-for-profit) is an organization whose primary objective is to support an issue or matter of private interest or public concern for non-commercial purposes, without concern for monetary profit. ...


As an illustration of the complexities: A 2006 Massachusetts law requires payment of tax on "pre-written" (not custom) software purchased and downloaded over the Internet for installation and use in Massachusetts, regardless of where it originates. However, the actual use of the same software downloaded by a Massachusetts resident to a server in another state remains a non-taxed "service". In contrast, Arkansas generally does not tax anything delivered over the Internet (such as downloaded software or music), except VoIP which is specifically defined as taxable "telecommunications services". Software (pre-written or custom) "delivered thru a tangible medium" (i.e., on disk) in Arkansas is taxable even if ordered online, except "custom software for a particular customer" which is non-taxable "programming services" even if delivered on a disk. Official language(s) English Capital Little Rock Largest city Little Rock Area  Ranked 29th  - Total 53,179 sq mi (137,002 km²)  - Width 239 miles (385 km)  - Length 261 miles (420 km)  - % water 2. ... IP Telephony, also called Internet telephony, is the technology that makes it possible to have a telephone conversation over the Internet or a dedicated Internet Protocol (IP) network instead of dedicated voice transmission lines. ...


In most cases, this complexity is part of the underlying sales tax laws; but while a brick-and-mortar store only has to deal with the sales tax laws of its own location, remote sellers have to deal with the use tax laws of many jurisdictions--up to every U.S. state and locality that assesses them, if the company has a presence or "nexus" in every state (as large "click-and-mortar" sellers like Wal-Mart and Best Buy do). A sales tax is a consumption tax charged at the point of purchase for certain goods and services. ... Wal-Mart Stores, Inc. ... Best Buy is sometimes called the big blue box because of the prominent design on Best Buy stores. ...

Contents

Self-Assessment

Not all use tax derives from sales transactions. There are also internal transactions a company might initiate that will trigger use tax consequences. For example, ABC Furniture Company buys its inventory tax-free with a resale certificate, then charges sales tax to its customers. But if this company removes furniture from inventory for use in the retail store by its sales staff, it has triggered a tax incident: use tax is due on the converted inventory that is being used, not sold. The states differ in the tax basis of such a transaction: some tax [cost], others [cost + overhead], and still others [cost + overhead + markup].


For another example, suppose a carpet manufacturer sends swatches of carpet to its sales people to use as samples. That is a taxable use of carpeting to the manufacturer (or distributor as the case may be).


Large manufacturers puchase many items that are used in both exempt and nonexempt manners. To facilitate determination of the correct tax due, they use a Direct Pay Permit that authorizes them to omit sales tax to their vendors, while requiring them to self-assess their purchases and remit the correct amount of use tax to the proper taxing authority.


It's also possible that equipment purchased under a manufacturing or mining exemption in one state is later relocated across a state line--into a jurisdiction where the exemption no longer applies. In this case, the company must recognize the book value of the capital item when it was relocated as the basis of the use tax due to the nonexempt state. Another form of use tax related to this example is referred to as reciprocity. Reciprocity is triggered when items taxed at a lower rate are transferred or put to use (subsequent to first use) in a taxing jurisdiction with a higher rate. The use tax due, where StateA is the sending state and StateB is the receiving state, is typically [[[StateB rate - StateA rate] + local rateB] x tax basis]. Most states do not offer reciprocity for their local rates, and they may have specific states they will reciprocate with or they may reciprocate on a quid pro quo basis with the other state.


Tax practitioners in large corporations must always be vigilant of transactions such as the above examples that trigger tax consequences for two reasons: 1) to make sure they are in compliance with state laws, and 2) to take advantage of all possible planning opportunities to minimize or avoid tax. Where the tax consequence is substantive and/or the law is vague, assistance will often be sought from outside professionals such as consultants, CPAs, or attorneys who specialize in sales and use tax and who keep up to date with the changing laws and case histories of the states.


Enforcement

In some cases, the taxing jurisdiction cannot always reliably determine whether any of their residents purchased items and then brought them into the jurisdiction. This often results in the submission of any use tax payments as being on the honor of the purchaser. Other states require annual statements, filed under pain of perjury, that the resident has submitted all necessary use-tax payments. The filing of a false document is often a much more serious crime than evading tax on out-of-state purchases. The state of Connecticut Attorney General occasionally publicizes the indictment of a blatant use-tax violator and soon receives millions of dollars from other guilty parties hoping for amnesty. An honor system or honesty system is a philosophical way of running a variety of endeavors based on trust, honor, and honesty. ... Perjury is the act of lying or making verifiably false statements on a material matter under oath or affirmation in a court of law or in any of various sworn statements in writing. ... Official language(s) English Capital Hartford Largest city Bridgeport Largest metro area Hartford Area  Ranked 48th  - Total 5,543[2] sq mi (14,356 km²)  - Width 70 miles (113 km)  - Length 110 miles (177 km)  - % water 12. ... Tax amnesty is a limited-time opportunity for individuals and businesses to pay past-due income, franchise, sales, or use taxes and the related interest – free of most penalties and fees (and interest on penalties and fees) and without fear of criminal prosecution. ...


A number of states have even entered into agreements in which they will allow vendors to share in the proceeds of sales taxes collected from buyers in other states who would not otherwise fall under the vendor's state tax obligation. A registered vendor is provided with tax guidelines by each state for which it will collect "sales" taxes, and may also be granted limited amnesty for sales taxes it failed to collect in the past in registered states.


See also

A tax exemption is an exemption to the tax law of a state or nation in which part of the taxes that would normally be collected from an individual or an organization are instead foregone. ... A tax holiday is a temporary reduction or elimination of a tax. ... Tax-free shopping refers to a type of marketing promotion wherein customers with access from a sales taxed jurisdiction are enticed to make tax free purchases, notwithstanding the legal requirement to pay the equivalent (compensatory) use tax when they return home. ... Article I, Section 8, Clause 3 of the United States Constitution, known as the Commerce Clause, empowers the United States Congress To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes. ...

References


 
 

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