Who owes Indiana Use Tax?
Generally, any type business entity (individual, partnership, corporation, etc) that makes purchases of tangible personal property are subject to use tax unless you previously paid at least a 7% sales tax on the purchase to the vendor. Use tax can be thought of as a mirror of the sales tax. Both our sales tax and use tax rates are 7%.
Use tax is due on property brought into Indiana for use, storage or consumption, unless the Indiana Code (IC 6-2.5-5) contains an applicable exemption for your purchase. If you paid at least 7% sales tax at the time of purchase you do not owe a use tax. However, if you did not pay at least a 7% sales tax you may owe use tax.
What type purchases might cause me to become liable for Use Tax?
- Catalog purchases by phone or mail from out-of-state vendors
- Internet purchases from out-of-state vendors
- Items withdrawn from your inventory for personal use or to give away
- Any purchase for which a statutory exemption is not available per the Indiana Code (IC 6-2.5-5)
What are some common examples of purchases I may make that become subject to the Indiana Use Tax?
- A dentist operates his/her business as a sole proprietorship. The dentist buys toothbrushes from an out-of-state supply house to give away to their patients during their annual exam. The vendor did not collect any sales tax on this sale. The dentist owes 7% use tax on these purchases as there is not an existing statutory exemption for this type item given away. The dentist should report the use tax on form ST-115.
- An auto repair shop purchases shop rags and other cleaning materials from an-out-of-state vendor. The vendor did not collect sales tax on the invoice. The auto repair shop should report these purchases on their next sales tax return, form ST-103, as being subject to use tax and remit the 7% use tax due.
- A manufacturer purchases new office furniture for their corporate office use from an out-of-state distributor. The distributor collects their state's 6% sales tax on the selling price. The manufacturer owes an additional 1% Indiana use tax on this purchase since the property is being used, stored or consumed within Indiana. The manufacturer should report this use tax liability on their ST-103 sales tax return.
- A law firm maintains an extensive legal library. Many of their legal books, manuals and publications are from out-of-state publishers who do not collect sales tax on items shipped into Indiana. The law firm owes 7% Indiana use tax on these type purchases and can remit these on their ST-103 return, if they are a registered retail merchant, or they can use the form ST-115.
- An individual orders magazines, clothing and novelty items from various out-of-state catalog companies. Sometimes the individual orders the items via mail, sometimes via the telephone and sometimes online over the internet. This individual should report these purchases to Indiana as being subject to our use tax of 7%. The individual can report these purchases on their Individual Income Tax Returns (IT-40 or IT-40EZ) or they may use a Form ST-115.
What about items I purchase at garage sales and auctions?
Items sold at garage sales are generally exempted under Indiana's casual sale statute. A casual sale exemption is applicable when the seller is not in the "business" of selling merchandise and the seller has already paid an original sales or use tax on the item. (IB #20)
Items purchased at auctions are slightly more complex. Naturally, if the auctioneer collects the 7% sales tax you will not owe any additional use tax. Also, if the auction takes place on the premises of the owner of the tangible personal property the items are considered to be "casual sales" and therefore exempt from sales and/or use tax. However, if the merchandise to be sold is moved to a location not owned by the owner of the merchandise the sales become subject to sales and/or use tax. All sales at auction "houses" are subject to the sales or use tax. (IB #20)
What if I've paid sales tax to another state?
The Indiana use tax rate is 7%, same as our sales tax rate. Thus if you:
Paid sales tax of 7% or more to the other state you do not owe use tax to Indiana
Paid sales tax of less than 7% to the other state, your Indiana use tax will be the difference between the Indiana 7% use tax and the amount you paid to the other state.
Why should I report and pay the Indiana Use Tax?
If you self-report the use tax due you will only owe the tax.
If you wait until the Department of Revenue issues you a bill for the use tax due you will have to pay a 10% penalty plus interest.
The Indiana Code requires use tax to be paid unless at least an equal amount of sales tax was paid on your taxable purchases. IC 6-2.5-3-2