Watch out for use taxes when you shop out of state

Everyone has heard of sales tax, but few people are familiar with use tax.  Use taxes are similar to state sales taxes but with one difference.  A sales tax is levied on purchases made within the state.  A use tax is levied on purchases made out of state when the goods are brought into the state to be used.

If your state has a use tax, you theoretically owe use tax on most items you buy out of state and bring in state.  This applies to everything from major purchases of furniture or appliances to small items you purchase by mail order, and even to magazine subscriptions.  In practice, it has been very difficult to track purchases and collect this tax from individuals.  Businesses usually report use tax on their state tax returns and are audited to check compliance.

However, with most states facing severe budget shortfalls, enforcement could change.  Some states require you to report use taxes you owe on personal state tax returns.  Others may establish reporting arrangements with neighboring states to track purchases, or they may monitor deliveries coming across state lines.  U.S. Customs may even share information on items being brought in from abroad.

This means you should think carefully when you purchase expensive items from out of state.  Even though enforcement may be erratic, you could be liable for a penalty as well as the use tax if you don't report it and your purchase is discovered.