Use tax is a tax imposed on the use, storage, or consumption of tangible goods (and certain services) in a jurisdiction when sales tax was not paid at the time of purchase. This tax is typically levied by the state or local government where the goods or services are utilized, and the rate is usually the same as the sales tax rate. The purpose of the use tax is to ensure that consumers who buy goods and services from out-of-state vendors or online retailers pay the same amount of tax as they would if they had purchased those items locally.
Example:
Suppose you live in a state where the sales tax rate is 7%. You decide to buy a laptop from an online retailer that does not have a physical presence in your state and does not charge you the 7% sales tax at the time of purchase.
Since you bought the laptop without paying the local sales tax, you are likely responsible for paying the 7% use tax to your state. This ensures that you pay the same total tax as you would have if you purchased the laptop from a local store, where sales tax is automatically applied at the point of sale.
We have covered the basics of sales and use tax in the United States. Next, let’s understand how sales and use tax works in New Jersey and how it may impact foreigners operating there.