Use tax … do I really need to pay it?

I bought a couple of things online from a store out of state, and I noticed they didn’t charge me any sales tax. After digging around, I found out about something called use tax. I’m not entirely sure if I need to pay it, so I’ve got a few questions:

  1. Do I have to pay it if I want to avoid getting in trouble?
  2. Would the state actually care enough to come after me over a $4 use tax bill?
  3. If they do, how am I supposed to file use tax correctly?
  4. How long do I have before I need to sort this out?
  1. Probably, but maybe not.
  2. Nope.
  3. Don’t bother.
  4. Doesn’t really matter.

Yeah, your accountant has it right.

Sage said:
Yeah, your accountant has it right.

We usually are most of the time.

Depends where you live.

Back when most online stores didn’t charge sales tax, Michigan used to estimate your use tax—and it was always higher than what you actually owed, so I just reported the real number.

Wait … liquor tax too?

This whole thing is kinda funny.

  1. Depends on where you live. States like CA and NY have a section on their income tax return where you list out-of-state purchases where no sales tax was paid. The system then calculates the use tax, and it’s added to what you owe for the year.

Here’s the thing … most taxes end up being paid because someone reports the transaction, whether by law or voluntarily. Tax agencies usually don’t know about taxable stuff unless someone gives them a heads-up. That’s why your job sends a copy of your W2 to the IRS and why businesses send out 1099s.

In this case, nobody’s telling the state you bought something without paying tax. The only way they’d know is if you tell them by reporting it yourself. Just putting that out there.

  1. Technically yes.
  2. If they find out, they might send you a notice, and you could get hit with penalties and interest, but for $4, it won’t be much.
  3. You can report it on your state tax return.
  4. Do it when you file your state tax return.

Edit: Meant to say state return, not federal. Some states call their form 1040, so I mixed it up.

@Oak
There’s no spot to report use tax on the federal Form 1040. It has to be done on a state-specific form. Some states include a section for use tax on their income tax return, while others require a separate form for it.

@Wil
Yep, you’re right. I meant the state form. My state also calls it a 1040, so I got mixed up.