Most business owners are aware they may need to collect and remit Sales Tax to the state they are located in, as well as other states they have Nexus. There’s also another related tax that some are unaware of – Use Tax. This tax applies to every business, not just those who are required to collect Sales Tax.
Use Tax is due whenever a taxable item (that Sales Tax is not paid on) is used in the business. There are a few main events that create the need for this filing:
Items are purchased outside of your state and brought or shipped into your state without sales tax being collected.
Items are purchased on a resale certificate, tax-free, are used in the business and not sold.
Items purchased on a resale certificate, tax-free, are given away at no charge to customers.
Many accounting systems are inadequate at handling Use Tax effectively, but it’s crucial to monitor and claim it as a deduction. It is vital to incorporate it as a cost and establish a liability to pay when it becomes due. The critical aspect is to remember to include it when it is time to file.
If you already file Sales Tax, you can file the Use Tax simultaneously. If you aren’t required to file Sales Tax, contact your state authorities to determine how and when to file. For Tennessee, here is where to file if you don’t collect and remit Sales Tax: https://tntap.tn.gov/eservices/_/#2.
We understand this is confusing, but don’t worry! We are here to help!
