Use Tax

Business By kristanashley Updated 1 Nov 2010 , 2:14pm by -K8memphis

kristanashley Posted 30 Oct 2010 , 2:32pm
post #1 of 14

What do yall charge use tax on? I'm brand new at this. For instance, I just purchased the mat, and some cake dummies online. If I claim them as business expenses, do I have to report and pay use tax for them? Or do you only pay use tax on things that are going home with the customer... i.e. flavored oils or cake supports, etc. bought online?

13 replies
indydebi Posted 31 Oct 2010 , 12:20am
post #2 of 14

I'm happy to be corrected if I'm wrong, but I believe the correct term is "personal" use tax. Anything I would pull from my inventory for personal use was the same as me buying the item from myself. I was my customer and my purchase was subject to the same sales tax as any other customer.

This is how I worked it and my accountant never corrected me.

-K8memphis Posted 31 Oct 2010 , 1:18am
post #3 of 14

Use tax is levied to pay tax on items purchased outside your home state for use within the state. For example, our point of sale computer system was purchased in Texas for use in Tennessee. We paid TN sales tax on it.

That's one definition of it anyhow--it gets real confusing real fast so the best idea is call your local tax office they'll explain it to you.

gingerbreadtogo Posted 31 Oct 2010 , 1:51am
post #4 of 14

One of the big use tax issues, is the stuff we buy online in other states and do not pay our local sales tax on it. In CA they are just starting to crack down on trying to collect use tax from business and individuals. As a business if you're not buying wholesale, you need to pay local sales tax even if you're purchasing online and out of state. Local and state govt want all their money....

kristanashley Posted 31 Oct 2010 , 2:29am
post #5 of 14

I understand what use tax is. My question is what do I apply it to? I'm just starting out from home, so my business and personal expenses are really convoluted. If I am saving the receipt, and claiming it as a business expense, and I don't pay sales tax for it, then I have to pay use tax, right (like the mat or a chef coat or my website builder)? Or do you only claim use tax for things (that were bought without paying sales tax) that are going home with a customer (like cake boards and support systems )?

jason_kraft Posted 31 Oct 2010 , 3:38am
post #6 of 14

It doesn't matter if an item you purchase goes home with a customer or not. Here's how I understand it: If you paid sales tax when you purchased the item, you do not owe use tax, unless the tax rate you paid was lower than your local + state tax rate, in which case you owe the difference in use tax. If you did not pay sales tax, then you owe the full amount of use tax based on your local + state tax rate.

You do not "claim" use tax (you may be confusing this with claiming purchases as tax deductions that reduce your taxable income -- that's income tax, not use tax). In most cases you can pay your accrued use tax with your state income tax return.

In some states and localities you are required to collect sales and/or use tax for your products, you would need to contact your state and local governments for information relevant to you.

I recommend separating your business and personal expenses as much as possible (including separate accounts) as well as creating an LLC and taking out liability insurance in order to protect your personal assets from potential lawsuits.

-K8memphis Posted 31 Oct 2010 , 3:48am
post #7 of 14
Quote:
Originally Posted by kristanashley

I understand what use tax is. My question is what do I apply it to? I'm just starting out from home, so my business and personal expenses are really convoluted. If I am saving the receipt, and claiming it as a business expense, and I don't pay sales tax for it, then I have to pay use tax, right (like the mat or a chef coat or my website builder)? Or do you only claim use tax for things (that were bought without paying sales tax) that are going home with a customer (like cake boards and support systems )?




You pay use tax. We paid it on the computer we bought in Texas and use in Tennessee. I don't think Tennessee cares if you paid tax elsewhere--if you din buy it here they're gonna tax you on it to use it here.

As far as claiming the use tax you've paid I don't know because that's where being owned by a non-profit comes in handy. Glory can you claim state tax on your federal income tax? Your federal income tax form should say somewhere.

You really need to call your local folks 'cause it's so confusing and different county by county.

jason_kraft Posted 31 Oct 2010 , 4:23am
post #8 of 14

Sales and/or use tax paid on a business expense can be deducted from your taxable income, just as the cost of the business expense itself can be deducted. (This is assuming you have a legitimate business, as hobby expenses are not deductible.) For capital assets, add the sales/use tax paid to the basis amount used for depreciation.

jason_kraft Posted 31 Oct 2010 , 4:26am
post #9 of 14
Quote:
Originally Posted by indydebi

I'm happy to be corrected if I'm wrong, but I believe the correct term is "personal" use tax. Anything I would pull from my inventory for personal use was the same as me buying the item from myself. I was my customer and my purchase was subject to the same sales tax as any other customer.

This is how I worked it and my accountant never corrected me.



Did you pay sales tax when you purchased items for your business? Unless your business was exempt from paying sales tax, you shouldn't have to pay sales/use tax again when transferring business inventory to personal inventory.

gingerbreadtogo Posted 31 Oct 2010 , 4:25pm
post #10 of 14

Kristanashley: Going home with the customer or not doesn't matter. You pay use tax on anything you bought and didn't pay "your local or state" sales tax on. You just need to separate business from personal for business expense on taxes. They want use tax on all business and personal items that were not originally taxed in your state. Now the real question is how do they know? In Calif they do sales tax audits but I haven't heard of use tax audits yet...

jason_kraft Posted 31 Oct 2010 , 4:43pm
post #11 of 14

To enforce use tax (for a business at least), all they have to do is look at your receipts to see where you weren't charged sales tax, and match that up with the use tax you paid on your state income tax return.

gingerbreadtogo Posted 31 Oct 2010 , 5:02pm
post #12 of 14

That's true.. I'm sure that 's coming down the road. CA state has been a little slow in the use tax area...

kristanashley Posted 1 Nov 2010 , 12:58pm
post #13 of 14

Thanks everyone. I'm in NC, and we have to report sales and use tax quarterly. I haven't bought anything in another state, but I have ordered things online. I got a separate banking account set up now for the cake business, so that the finances won't seem so muddled to me anymore. icon_smile.gif I guess I'll be paying use tax on everything business related from now on.... but I don't have to like it. icon_smile.gif

-K8memphis Posted 1 Nov 2010 , 2:14pm
post #14 of 14

I use Quickbooks for my accounting in the bookstore. I'm not very good at it but it has more than everything I ever needed or could imagine to help me account for everything properly. You might already have it and it's not cheap to purchase but it is really good.

They have tons of tutorials and you can get one on one help. Great stuff.

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