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Don’t be Surprised by a 2014 Use Tax Liability, Take Action Now

January 15, 2015

If your business does not sell products you must identifying any use tax obligation.

Often time’s businesses that do not sell products, and are not required to register as a sales tax vendor, assume that they have no need to be concerned with sales tax. Businesses which make this mistake run the risk of incurring costly use tax audits; often times for as many as seven prior years.

When taxable products or services are purchased and the vendor does not collect sales tax the user is responsible to self-assess and pay over a use tax. Tax rates and other rules for use tax generally mirror the sales tax in each state. In Massachusetts, a business that is not required to be registered as a sales tax vendor has an obligation to file an annual Business Use Tax Return, Form ST-10, by April 15, 2015 to report tax due on taxable purchases made in 2014.

Rhode Island has a similar filing, the Consumer’s Use Tax Return, Form T-205, for taxpayers that are not registered sales tax vendors. Unlike Massachusetts, the Rhode Island filing is due monthly, on the 20th day of the month following the month in which a taxable purchase is made.

States are aggressively auditing businesses for use tax obligations. In situations where no return was ever filed the normal statute of limitation provisions do not apply and states often make an assessment for seven prior years. One of the most problematic expenses for use tax concerns software licenses and services. Often times these services are provided by out of state vendors who do not charge sales tax. The issue is further complicated by the evolving SaaS business model and the uncertainty around whether these charges are subject to tax. Internet and mail order purchases of property also run a high risk of being subject to use tax.

Now is the time as you wrap up 2014 to go back and identify any obligation for self-assessed use tax. Even if no tax is due, a return should still be filed in the states where you do business in order to start the clock running on the statute of limitations. Failure to take such action now can prove to be very costly at the time of a future use tax audit.

The tax professionals at KLR can assist with identifying any use tax obligation your business may have. If you have concerns about this matter you can contact us.

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