States are losing billions of dollars in use tax revenues because of how our economy has changed over the past decade. Consumers and businesses alike are buying products from across the globe instead of just in their own states—and that means sales tax isn’t always collected as part of the transaction. But that’s not how the majority of use tax liabilities are created for businesses and not knowing this might end up costing you a good deal of money, time, and growth.
We’ve noted before that just because consumers generally ignore use tax doesn’t mean businesses are off the hook for use tax. How likely are you to be penalized for not paying use tax?
When Business Don’t Pay Use Tax
It can be quite complex to figure out when you need to pay use tax. It’s often a lot more complicated than just paying for purchases your business made online, which is the most obvious source of use tax.
If you’re a florist, what about the soil used to grow flowers? One Vermont businessman found out the hard way that soil consumed in the act of producing flowers for sale was subject to use tax. Chris Conant was hit with a $150,000 tax bill after an audit of his florist shop. It was surprising just how much was subject to use tax, despite that floral arrangements themselves are non-taxable.
“Virtually everything I touch is being taxed, except the plant,” Conant added.
The soil, florist’s wire, plant flats, vases, ribbons, and everything in between is subject to use tax because the items are not exempted from tax by law. In the same article, another floral shop owner, Tom Jennings, was hit with a $200,000 use tax bill.
“My biggest issue, I told them all along, if you really want to work with businesses, instead of sending out auditors, send out advisers,” Jennings said. “Knock on the door and ask, ‘Would you be interested in knowing if you’re compliant or not?’ Come on in and have a meeting. But that’s not how this thing flew.”
Auditors Don’t Help with Compliance
There’s a problem here with what Jennings has to say. He’s expecting states to help his business comply with sales and use tax laws. Any professional in the sales tax industry will tell you that’s not the auditor’s job—and expecting that kind of service from a state revenue agency is a huge mistake. As a business owner, it’s your duty to comply with the law or hire an advisor to help you.
For consumers, some states allow them to check a box on their income tax returns to pay an estimated use tax. But this isn’t the case for businesses. There’s no easy fix for use tax but not paying use tax can spell disaster. Yes, you really do need to pay use tax.
Not sure if you’re paying use tax correctly or enough? We can help with outsourcing and tools to make sales tax filing a breeze.