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Use Tax Transactions
Contents
- Definition of Use Tax
- Examples of Use Tax Transactions
- Examples of Items Subject to Use Tax by Business Classification
Use Tax
Most retail dealers are familiar with the collection and payment responsibilities for sales tax purposes. Dealers collect sales tax on certain retail sales of tangible personal property and the sale of certain services. They remit these taxes directly to the City-Parish. However, many retail dealers are not aware of their responsibilities for use tax purposes. Dealers that are not familiar with use tax requirements may have a substantial tax liability. The purpose of this information is to advise dealers of basic use tax requirements.
Use tax applies to tangible personal property purchased for use, consumption, distribution or storage for use in this Parish. Use tax is due only when a sufficient local sales tax has not been paid on the purchase. The use tax does not apply to property on which a local sales tax of at least 5% has been paid. Nor does a use tax apply to property purchased for resale or property that is exempt from sales tax. The purpose of the use tax is to ensure that all articles of tangible personal property used in this Parish are uniformly taxed, regardless of where the items may have been purchased. It is based on the actual cost or the reasonable market value, whichever is less. All purchases subject to use tax must be reported on line 14 of the Sales and Use Tax Report.
Situations in which local sales tax is frequently not paid include:
- Purchases from out-of-parish vendors or out-of-state vendors. These vendors may not be registered to collect our tax when such purchases are delivered in this Parish
- Items purchased for resale taken from inventory for use by the business
R.S 47:337.12 (C) - Prohibition on levy or collection of tax on property stored for use outside the political subdivision.
- No taxing authority shall levy or collect any use tax on the storage of property which has been documented for use outside the taxing jurisdiction of the taxing authority although the property may be stored within the taxing jurisdiction if the owners of such property which is to be stored for exclusive use outside the taxing jurisdiction have acquired a tax exemption certificate from the taxing authority's collector.
- When a vendor is presented with a copy of a tax exemption certification from a vendee, the vendor shall be relieved from liability for the collection of use tax on such property.
- If the property is removed from storage and is used within the taxing jurisdiction, the property shall be subject to taxation.
Examples of Use Tax Transactions
Example 1 - A company located in East Baton Rouge Parish orders a computer from an out-of-state catalog company. The computer is delivered by common carrier directly to the buyer and the seller does not collect any local sales or use tax.
Solution
The buyer must accrue and pay a use tax directly to the City-Parish because the computer is purchased for use in this Parish. The use tax is based on the cost price of the computer. The taxable amount is included on Line 14 of the sales and use tax return.
Example 2 - A construction company located in East Baton Rouge Parish purchases building materials from a Texas supplier. The purchase order and the invoice indicate the materials are intended for use at a construction site in Iberville Parish. The materials are delivered by common carrier directly to the buyer in East Baton Rouge Parish. The materials are stored here temporarily until needed at the job site.
Solution
This transaction is a use tax transaction since the materials are delivered by common carrier. East Baton Rouge Parish cannot collect its use tax because the purchase order and/or invoice indicate the materials are to be used in Iberville Parish. Use tax is due Iberville Parish when the materials are delivered there. See R.S 47:337.12 (C).
Example 3 - Assume same facts as in Example 2, except that the materials are delivered by the seller's trucks and not by common carrier.
Solution
This transaction is considered a sales tax transaction since the seller is physically transferring possession of the goods in East Baton Rouge Parish. In this case, sales tax is due to East Baton Rouge Parish and the place of storage or subsequent use of the goods is immaterial. The key factor is delivery by seller's vehicle. The seller is responsible to collect sales tax.
Example 4 - A company located in East Baton Rouge Parish purchases an air compressor from a company located in Kenner, Louisiana. The EBRP repair company sends its truck to Kenner to pick up the air compressor. The seller invoices State sales tax of 5% and Kenner sales tax of 5%.
Solution
This transaction is a use tax transaction because the buyer imports the air compressor into East Baton Rouge Parish. Is there any use tax due East Baton Rouge Parish? East Baton Rouge Parish must give credit for the 5% local tax paid to Kenner. As a result, no local use tax is due to East Baton Rouge Parish.
Example 5 - A drilling company located in Lafayette purchases a drilling rig in June 1995 for $1,500,000 and pays 2% local sales tax of $30,000. In July 2000, the rig is used in East Baton Rouge Parish. The fair market value of the rig at the time of use in this Parish is $1,000,000.
Solution
This transaction is a use tax transaction because the rig is used in East Baton Rouge Parish. Is there any use tax due East Baton Rouge Parish and what is the basis for the tax, actual cost or reasonable market value? YES A use tax is due East Baton Rouge Parish and it is based on the reasonable market value of $1,000,000, which is less than the actual cost of $1.5 million dollars. How do you compute the tax due East Baton Rouge Parish?
Reasonable Market Value of Rig (7/2000) - $1,000,000
Use Tax Rate - East Baton Rouge Parish x 5%
Amount Due Before Credit - $50,000
Credit for Tax Paid to Lafayette ($1,500,000 x 2% tax)- ($30,000)
Use Tax Due East Baton Rouge Parish - $20,000
Examples of Items Which May Be Subject to Use Tax by Business Classification
Banks
- Printed Materials:
- Checks
- Loan Agreements
- Business Forms
- Office Supplies
- Computer Purchases and Leases
- Software
- Computer Supplies:
- Paper
- Diskettes
- Ribbons
- Office Equipment Purchases and Leases
- Books, Manuals, Directories
- Advertising Specialties:
- Maps
- Calendars
- Pens/Pencils
- Operational Supplies:
- Bill Bands
- Coin Bags
- Coin Wrappers, etc.
Car Dealerships
- Promotional Material:
- Books and Brochures
- T-Shirts and Other Giveaways
- Training Supplies from Manufacturer:
- Manuals
- Videos/Films
- Tools and Equipment
- Computer Equipment and Related Service Contracts
- Software
- Office Supplies
Chemical Companies
- Chemicals used in the manufacturing process which do not become part of the finished product (i.e. Catalysts)
- Computer Equipment
- Software
- Tools and Equipment, including Rental Equipment
- Safety Equipment
- Shop Supplies
Construction Companies
- Construction Equipment
- Tools
- Books and Publications
- Building and Construction Materials
- Office Supplies
- Computer Equipment and Software
- Signs
Grocery Stores
- Business Machines
- Restaurant Supplies Deli Department:
- Machines
- Fixtures
- Utensils
- Signs
- Office Supplies
- Computer Equipment and Software
- Furniture, Coolers, and Shelving
- Printing
- Grocery Carts
Hospitals
- Medical Supplies:
- Drugs: 3%
- Catheters: 3%
- Pacemakers: 3%
- Prosthetic Devices: 3%
- Surgical Supplies and Instruments: 3%
- Computer Equipment and Software
- Office Supplies and Equipment
- Books
- Medical Equipment
Lease/Rental
- Items purchased for Lease or Rental Purposes
- Effective July 1, 1996, Motor Vehicles purchased for lease/rental are excluded from sales and use tax.
- Tools
- Machine Parts
- Office Supplies
- Repairs to Rental Property
Professional Businesses
- Books and Journals
- Office Supplies
- Office Equipment
- Service Contracts
- Computer Equipment and Software
- Medical Supplies
Repair Dealers
- Tools and Equipment
- Shop Supplies
- Office Supplies and Equipment
- Promotional Materials:
- Calendars
- Pens
Restaurants, Lounges & Night Clubs
- Business Machines and Supplies (Cash Registers)
- Uniforms
- Furniture
- Cleaning Supplies
- Signs
- Kitchen Supplies:
- Reusable Utensils and Containers
- Timers
- Thermometers
- Promotional Materials
- Meals and drinks not sold, but given to customers or employees
- Lease payments on Equipment and Furnishings
It is very difficult to discuss all aspects of use tax transactions. Please contact the Revenue Division at (225)389-3084 if you have any further questions concerning use tax.