Use tax is the counterpart of sales tax. Merchandise that is normally taxable for sales tax purposes, but is purchased outside the state where your business is located, is subject to a usage tax. The use tax rate is typically the same as your state sales tax rate.
If your vendor does not collect the use tax, it is the responsibility of the purchaser to self-assess, report and remit this tax to the state. The purpose of this tax is to prevent vendors located outside of a state from having an unfair competitive advantage over instate vendors who must charge a sales tax.
The liability for paying use tax falls on your company. QuickBooks® does not specifically provide a mechanism to track the details for calculating and paying use tax as it does for sales tax. However, consider the following strategy:
If purchases from an out-of-state vendor are subject to use tax, utilize the Vendor Type field to isolate these transactions. Set up a new Use Tax vendor type in the Additional Info screen and edit each appropriate vendor to include this information.
Then create a memorized report as follows:
When it's time to pay the use tax, simply run the memorized report for the desired date range, multiply the total applicable purchases by your tax rate and write the check. Save a copy of this report for your records.
If you also pay sales tax, you can add the use tax liability to the sales tax payable register in the Increase column using the appropriate tax vendor and expense account. When it is time to create the check, choose Sales Tax from the Vendors menu and then click Pay Sales Tax. Create a payment for both taxes on the same check.
Be prepared in the case of an audit. We can review the accuracy of your sales and use tax reporting. Contact us if you have any questions about Use Tax in QuickBooks.
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