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Use Tax Transactions

Definition of Use Tax
Examples of Use Tax Transactions
Examples of Items Subject to Use Tax by Business Classification

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: 1) 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 and 2) 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.

  1. 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.

  2. 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.

  3. 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 No. 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 No. 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 No. 3 - Assume same facts as in Example No. 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 No. 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?  NO.  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 No. 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 7/1/96, 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, and 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.