The other side of sales tax

When you or your business purchase a product in a store you generally pay sales tax on that purchase (6% for Michigan).  You may have also noticed that when you purchase that very same item online, say from Amazon.com, or through a catalog, you are not paying sales tax (and I’m sure you’ve noticed that!).  Have you ever wondered why you pay tax during one transaction and not in the other?  The fact is that the tax amount hasn’t changed, the method of payment is what changes.  The name of the tax is different as well, but I’ll get to that in a minute.

Sales Tax

When buying a product in state you owe a tax on the sale of the good sold (“sales tax”).  The store selling you the good is responsible for collecting that tax from you and giving it the State.  So you pay your tax liability at the time of the sale.

Use Tax

When you purchase a good from a company out of state and/or that is not responsible for collecting Michigan sales tax, you still owe that tax. However, you are now responsible for a “use tax”, or a tax for the privilege of using that good in your home state.  The company you purchased it from is not responsible for collecting the tax, but you are still responsible for paying the tax.  When it comes to paying the tax, you are on your own.  This is true in substantially every state that charges a sales tax.

Use tax applies to every good you purchase out of state to use in the state.  It even applies to purchases made out of country that are brought into the state.

The next logical question you may be asking is, “What if I paid tax for it in another state and I bring it into this state?”  This simple question has a much more complex answer, much too complicated to be easily summarized.  If you run into this situation it is best to consult with us ^[1], as each situation can be unique.

How to tell the state that you owe use tax

There is a line on the Michigan personal income tax return to record the amount of tax you owe (line 22 on the 2010 MI-1040).