Use tax

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Most states have a sales tax. This is a tax that is paid whenever a product is purchased within the state. However, sales tax doesn't apply when a product is purchased by mail, internet, or phone from out of state. Use tax is the state's response to this. Use tax requires that the person who purchases an item from out of state, pay a use tax. Frequently this tax is the same as the sales tax rate and is a way for states to avoid loosing out on sales tax revenue when items are purchased from out of state.

Use tax is typically self-assessed. It relies on consumers to track their purchases and pay the state the correct amount of tax. Some states have a use tax worksheet as part of their income tax returns. Some states are trying to be more proactive by using standardized tables and charging the tax based on expected use tax amounts for a particular income range.

Other states like Colorado are requiring out of state retailers to send consumers and the state a year end report showing the value of purchases on which use tax is owed.