Use tax is a sales tax on purchases made outside of one’s state of residence for taxable items that will be used, stored or consumed in your home state.  It is a tax you are required to pay when you purchase a taxable good or service for use in Connecticut on which you did not pay sales tax to a retailer.

A use tax is supposed to protect in-state retailers against unfair competition from out-of-state sellers that aren’t required to collect tax. It also ensures that all of a state’s residents help fund state and local programs and services, regardless of where they shop. As of 2018, 45 states have a use tax law.

What about online shopping?

If you’re a Connecticut resident, chances are you’ve been shortchanging the State Treasury each year when you file your state income tax return without even realizing it. With all that online shopping offers, many use the internet to buy all sorts of products. The fact that many online retailers do not charge sales tax on purchases is seen as an extra incentive to shop online. However, just because your go-to online store doesn’t charge you sales tax doesn’t mean that you don’t have to pay taxes. Connecticut law requires you to self-report the purchase and pay use tax in lieu of sales tax.  The use tax rate is the same as the resident’s local sales tax rate, which includes both state and local sales taxes. A resident who does not pay use tax may be subject to interest and penalties.

Amazon states that items purchased on their site may be subject to tax depending on the type of the item purchased and the delivery address of your order, among other factors.

Generally speaking, use tax is determined by where the buyer is located.  If an online retailer maintains a physical presence in a state that charges a sales tax on most purchases, then that online retailer must charge sales tax on any items that are sold to customers within the home state. However, if the online retailer is selling an item to a customer outside of its home state, then it is not required to collect sales tax from that customer.

Isn’t it the same as sales tax?

The sole difference between a sales tax and a use tax is the person who ends up giving the money to the state government. When it is a sales tax, the retailer is the one handing over the money, while a use tax is handed over directly by the consumer.   Other than that, it is functionally the same tax.  For more FAQs, click here.

And coming up, a way to avoid the use tax altogether!

From August 18th-24^th, 2019, it’s the Annual One-Week Sales and Use Tax Exclusion
for Clothing and Footwear Costing Less Than $100 – it’s the Sales Tax Holiday!

This is a one-week period in August for clothing and footwear sales and use tax exclusion.  The “sales tax holiday” occurs the third Sunday in August through the following Saturday, and applies to clothing sales made by Connecticut and out-of-state retailers to Connecticut customers for purchases of clothing or footwear costing less than $100 per item.

The exclusion applies to each item of clothing or footwear sold, regardless of how many items are sold to a customer on the same invoice. However, for any item that costs $100 or more, sales tax applies to the entire price of that item.

This is just in time for back to school shopping or snapping up the end of summer sales for next year!