Tracking and paying use tax

When it comes to use tax, businesses generally fall into one of three categories: those who have no idea what it is, those who know what it is but don't pay it consistently (or at all), and those who have a system for tracking and paying it.

What exactly is a use tax?

It's similar to sales tax, but it's specifically applied to items you purchase from an out-of-state vendor where no sales tax is applied at the time of purchase. The purchaser of such items is responsible for tracking the items they purchase that are subject to use tax and submitting payments to the state of Oklahoma.

Some people view use taxes as a voluntary payment or think the state won't catch them if they fail to pay. But if you undergo a sales tax audit, which can happen to any business, you'll end up paying both the original use tax plus penalties and interest. And, more importantly, paying the use tax is simply the right thing to do.

How should you track use tax?

Whether you're using a bookkeeping software or basic spreadsheets, you can track use tax at the time you enter your purchase.

The use tax is calculated on the price of the product and not on shipping or other fees. So if your item costs $100 and you paid $10 in shipping, calculate the use tax on only the base price of $100 using the use tax rate for the zip code where the product was shipped. You can find use taxes by zip code online using the Oklahoma Tax Commission's online rate locator.

The first thing I do is write "use tax" on the top of the receipt and write my calculations directly on the receipt so I have the hard copy record.

Enter the total of the product cost, shipping, and use tax amount as an expense in your bookkeeping system. In this case, the total might be $118.50 after use tax is applied to the $110 you paid for the product plus shipping. Then enter a credit for that same item in the amount of the use tax, or $8.50 in this case. File your hard copy receipt in a specific folder for items subject to use tax so you'll have everything you need to file and pay use taxes.

How often should I submit use taxes to the state?

For most businesses, I recommend submitting the appropriate form and payment to the state on a monthly basis. That way it's simply part of your monthly bookkeeping routine and not something you're likely to forget. If you don't have any use tax to pay during a specific month, you don't need to file the form.

What else should I know about use tax?

At one point in time, all online purchases through Amazon were subject to use tax. That changed when the state of Oklahoma worked with Amazon to start collecting sales tax on purchases. However, some smaller sellers who use Amazon's platform to sell goods may not be collecting sales tax, so it's still important to keep an eye on your receipts and submit use tax for any items that were not charged sales tax.

For businesses that keep an inventory of products, such as an IT company with extra hard drives, those purchases may not be subject to sales tax at the time of purchase. However, if the inventory is put into use at the company, then use tax applies.

Businesses with inventory or questions about use tax may contact a CPA or a bookkeeper for more information about what products are subject to use tax.

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