USE TAX
■ What is “use” tax?
Use tax generally applies to the use of tangible personal property in California that has been purchased without payment of California sales tax. Use tax does not apply to property held for resale, or for property that is used only for demonstration and display while being held for sale in the regular course of business. Use tax is calculated on the item’s purchase price. The rate is the same as your sales tax rate.
■ When do I owe use tax?
Typically, you owe use tax on items
• Purchased for use in this state from an out-of-state retailer who does not collect California tax, or
• Purchased for resale, but withdrawn from inventory and used for another purpose.
Examples:
• You buy office equipment over the Internet from an out-of-state vendor who does not collect California tax. Since you will use the equipment in your business in California, you owe use tax on the purchase price.
• You operate a convenience store and purchase soda for resale without payment of California sales tax. However, instead of selling the soda, you take five cases home for a birthday party. Since you consumed the soda instead of reselling it, you owe California use tax on the cost of the soda. Please note, if you took home food items for the party (for example, hot dogs, buns and chips), you would not owe use tax because you are consuming food products that were exempt from tax when you purchased them. For those items on which you owe use tax, you should report your use tax liability by reporting the purchase price on line 2 of your tax return “Purchases Subject to Use Tax.” Note: There are some instances
where donations to certain charitable organizations are not subject to tax.
■ What if I already paid use tax to my out-of-state supplier?
Some out-of-state retailers are required to, or have voluntarily registered to collect and report California use tax from their customers.
You do not need to report the purchase on line 2 of your return if you already paid the correct amount of California tax to your out-of-state supplier and that supplier is registered to collect the tax. In order to relieve your liability for the use tax, you must obtain and keep a receipt or invoice from the supplier that includes: the retail-er’s name, address, and California seller’s permit number or use tax registration number (certifi cate of registration—use tax); your (the purchaser’s) name and address; the date of sale; a description of the property sold; the sale amount and the amount of the tax paid.
