Does your business owe Use Tax?

You may owe use tax if you did not pay sales tax.

What is Use Tax? Compensating use tax is a tax imposed on the use within New York State of certain tangible personal property and certain enumerated services (1) purchased outside of New York, which would have been subject to sales tax if purchased in New York state; or (2) purchased in New York but, for various reasons, the sales tax was not paid at the time of purchase. (Ex. – A New York taxpayer purchases equipment from a New Jersey vendor to be used in New York. The vendor does not have Nexus in New York and therefore does not charge sales tax. The New York taxpayer is required to pay a compensating use tax on the equipment purchased.)

Use tax is also imposed on the use of certain tangible personal property manufactured, processed or assembled by the user. (Ex. – A company manufactures and sells windows. The taxpayer takes some of those windows and uses them for repairs in their New York City offices. The "use" of those windows within the state of New York subjects them to use tax.) [N.Y. Tax Law § 1110]

Why is there use tax? Use tax is designed to prevent the avoidance of New York State sales tax by way of out of state purchases.

Who does it apply to? Businesses and individuals. The tax applies to uses within the state of tangible personal property and certain services (1) purchased by a New York taxpayer outside of the state, which would have been subject to sales tax if purchased in the state, or (2) purchased in the state but upon which sales tax was not paid at the time of purchase.

How is it calculated? Use tax is imposed at the same rate as the sales tax on taxable purchases made outside the state for use within the state. (Ex. – If your business operates in New York City and you bring in goods to be used in New York City, the New York City sales tax rate is used.)

How do I report and pay use tax? Use tax is reported and filed on your monthly, quarterly or annual sales and use tax returns. Manufacturers, processors, and assemblers must attach a schedule to the return for the quarter ending November 30th of each year beginning the prior December 1st for the purpose of determining whether the taxpayer used products for sale in the regular course of business. [20 NYCRR § 531.3(b) (3)]

Significance? Non-compliance could result in a sales and use tax audit. Sales and use tax audits could potentially result in tax assessments as well as significant interest and penalties.

Are you in compliance?

Brian R. Michels, CPA
Sheehan & Company, CPA, PC
165 Orinoco Drive
Brightwaters, NY 11718

Tel: 631-665-7040 ext. 317
E-mail: bmichels@sheehancpa.com
www.sheehancpa.com

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