Understanding Use Tax: Part I

Safe Harbor Tables

As a native to the North East Kingdom, I lived on the border with New Hampshire until recently. Where I come from, it’s fairly common for people to drive an extra ten minutes across the border to buy things without sales tax added on. What is surprising is that once you do this, you owe use tax to Vermont for the purchases you made without the sales tax. The strategy of driving across the border does not actually save money. In fact, if you drive a gas-guzzling vehicle, you may even lose money on the longer trip. While you may not hop borders to save on sales-tax, this practice is similar to online purchases. Many people do not give thought to the fact that they owe money based on these tax-free transactions.

What is use tax? 

Use tax is a tax owed to your state of residency based on purchases in which you did not pay required sales-tax. Only five states do not have sales tax: Alaska, Delaware, Montana, New-Hampshire, and Oregon. Use tax can arise in a number of manners, typically buying goods in a state without sales-tax or tax-free online purchases. However, you also owe use tax by making purchases in a state with a lower sales-tax, catalogs, and even in some private transactions.

Using safe-harbor tables, to be continued…

Keep your eyes peeled for our next blog post on use tax to find out how Vermont’s safe-harbor tables calculate the amount of use tax you owe.

Questions about use tax?  Call the experts at Davis & Hodgdon Associates CPAs 802.878.1963 – Serving Vermont’s residents and entrepreneurs since 1990.

Alyssa McBride, Associate Accountant

Davis & Hodgdon Associates

November 2012