Do I Pay Sales Tax on Out-of-State Purchases?

The U.S. Constitution grants the federal government the exclusive right to regulate – and tax – interstate trade. Because of this, states don't have the constitutional authority to collect sales taxes on items you purchase in another state. That doesn't mean that by purchasing your goods through mail-order catalogs you can dodge the tax man altogether. Nor does it mean that by driving to another state with a lower sales tax rate you can avoid your taxable duties either. Many states implement a use tax to avoid those schemes.

Sales Tax Basics

In most states, you pay sales tax on price of goods you purchase at the point where you take possession of the goods, not where the transaction occurs. Because of this, if you purchase a sofa inside city limits and have it delivered to your house in the country, you're only liable for the county's sales tax rates, not the city's, even though you bought the couch in the city. If you have the sofa delivered to an out-of-state address or purchase seeds from a catalog company based in another state, you don't owe sales tax because you took possession of the item in a location the state is constitutionally barred from taxing.

Use Tax

Because many states recognized the potential for massive losses in sales-tax receipts if their citizens purchase items in other states to avoid their local sales tax, many states implement a use tax on goods purchased in other states but brought into the state where they're used. In most cases, use taxes only claim the difference in taxation rates between your home state and the state in which you paid sales taxes on. For example, if you purchase a television in an electronics store just on the other side of the state line, and pay 4.2 percent, when you begin using it in your state, which has a 6.3 percent sales tax, you're required to pay a 2.1 percent use tax on its sales price.

Mail-Order Taxes

Still, voluntary reporting of use tax isn't efficient, and many states recognize that most consumers won't report purchases of items, particularly ones of low value, made out of state. Because of this, Colorado, New York, North Carolina and Rhode Island passed state laws that require mail-order companies to collect sales tax directly from sellers in their states or tax revenues generated on affiliate programs. While opponents of the measures point to a Supreme Court ruling that allows retailers to ignore sales-tax assessments on shipments if they don't have headquarters there, laws that challenge online shopping have not been heard by the Court as of this publication.

Paying Use Tax

States that require you to make use tax payments for out-of-state purchases implemented various means to report and pay the tax. In New York, use taxes are declared on your state income taxes, while Californians report out-of-state purchases to the equalization board. Many states only levy use taxes against business and not individuals.