Use Tax

A charge imposed on the use or possession of PERSONAL PROPERTY.

Governments employ use taxes to accomplish two purposes. A use tax may be imposed to prevent someone from evading a sales tax by buying goods in a nontaxing state and shipping them into the state that imposes the sales tax. Use taxes are also used to help defray the cost of public services associated with particular types of personal property.

States and municipalities impose use taxes on purchases or rentals that are made outside the taxing jurisdiction but would have been taxable had they taken place within it. Such transactions escape the normal sales tax collection because retailers outside the state or municipality are not required to collect the sales tax. The use tax protects retailers located in the state or municipality because it removes the incentive for consumers to shop outside that locality in order to avoid paying the sales tax. For example, suppose a person buys a car from a dealer in a nearby state that does not impose a sales tax. The buyer must pay use tax on the purchase price when he returns to his state or city.

In addition, persons who order catalog merchandise from out-of-state companies that do not charge sales tax are obligated to pay the use tax themselves. Collecting the tax in this situation is difficult, however, because the government has no effective way of monitoring these sales.

The other purpose of a use tax is to help recoup the cost of public services directly related to the use of certain types of personal property. The most common use taxes are assessed on motor vehicle and boat licenses. User fees are also charged for docking privileges in airports or harbors.

The use tax on motor vehicles is generally allocated to the maintenance of roads and bridges and to the regulation and administration of motor vehicles. The federal government collected a use tax on motor vehicles during WORLD WAR II, but the tax was shifted to the states after the war. The use tax on vehicles and boats also serves as a method for identifying all vehicles and boats in the jurisdiction.