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Use Tax Transactions (Rule 9 - Sales and Use Tax Rules and Regulations)

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

As part of the Total Quality Management (TQM) process, the Finance Department, Auditing Division, sampled its 1997 sales/use tax audits to identify the most common taxpayer mistakes. The most common audit issues found were:

51%

Failed to pay use tax on taxable purchases.

33%

Charged sales tax to customers incorrectly.

6.5%

Collected taxes and did not remit them to the City-Parish.

6.5%

Paid tax on non-taxable items (refund audits)

   3%

Mathematical errors occurred when the tax return was prepared.

Because Use Tax consisted of over half of our audit findings in 1997, this tax compliance problem is discussed below.

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.  See Rule 9 of the East Baton Rouge Parish Sales and Use Tax Rules and Regulations.

L.R.S. 33:2716.2 - Prohibition on levy or collection of tax on property stored for use outside the political subdivision.

  1. No political subdivision shall levy or collect any use tax on the storage of property which has been documented for use outside the political subdivision although the property may be stored within the political subdivision if the owners of such property which is to be stored for exclusive use outside the political subdivision have acquired a tax exemption certificate from the local tax 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 political subdivision, 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 Rule 2 (c) of the East Baton Rouge Parish Sales and Use Tax Rules and Regulations and L.R.S. 33:2716.2.

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.  See Rule 2 (d) of the East Baton Rouge Parish Sales and Use Tax Rules and Regulations.

Example No. 4 - A repair company located in East Baton Rouge Parish purchases an air compressor from a company located in Kenner, Louisiana.  The repair company sends its truck to Kenner to pick up the air compressor.  The seller invoices State sales tax of 4% and Kenner sales tax of 5%.

Solution

This transaction is a use tax transaction because the buyer purchases and imports the air compressor in 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 ($1,000,000 x 2% tax)
(20,000)

USE TAX DUE EAST BATON ROUGE PARISH
$30,000

 

EXAMPLES OF ITEMS WHICH MAY BE SUBJECT
TO USE TAX BY BUSINESS CLASSIFICATION

Banks

Car Dealerships

Chemical Companies

Construction Companies

Grocery Stores

Printed Materials
   - Checks
   - Loan Agreements
   - Business Forms

Promotional Material
   - Books and Brochures
   - T-shirts and Other
      Give Aways

Chemicals used in the
    Manufacturing Process
    which do not Become
    Part of the Finished
    Product (i.e. Catalysts)

Construction
   Equipment

Business Machines

Office Supplies

Training Supplies from
    Manufacturer
  - Manuals
  - Videos/Films

Computer Equipment

Tools

Restaurant Supplies -
   Deli Department
   - Machines
   - Fixtures
   - Utensils

Computer Purchases
   and Leases

Tools and Equipment

Software

Books and Publications

Signs

Software

Computer Equipment
   and Related Service
   Contracts

Tools and Equipment -
    including Rental
    Equipment

Building and
   Construction Materials

Office Supplies

Computer Supplies
   - Paper
   - Diskettes
   - Ribbons

Software

Safety Equipment

Office Supplies

Computer Equipment
   and Software

Office Equipment -
    Purchases & Leases

Office Supplies

Shop Supplies

Computer Equipment
    and Software

Furniture, Coolers,
   and Shelving

Books, Manuals,
   Directories

 

 

Signs

Printing

Advertising Specialties
  - Maps
  - Calendars
  - Pens/Pencils

 

 

 

Grocery Carts

Operational Supplies
   - Bill Bands
   - Coin Bags
   - Coin Wrappers, etc.

 

 

 

 

 

Hospitals

Lease/Rental

Professional Businesses

Repair Dealers

Restaurants, Lounges,
and Night Clubs

Medical Supplies
   - Drugs - 3%
   - Catheters - 3%
   - Pacemakers - 3%
   - Prosthetic Devices - 3%
  - Surgical Supplies and
    Instruments - 3%

Items Purchased for
   Lease or Rental
   Purposes
   - Effective 7/1/96, Motor
     Vehicles purchased
     for lease/rental are
     excluded from local
     sales and use tax.

Books and Journals

Tools and Equipment

Business Machines and
   Supplies (Cash
   Registers)

Computer Equipment
   and Software

Tools

Office Supplies

Shop Supplies

Uniforms

Office Supplies and
   Equipment

Machine Parts

Office Equipment

Office Supplies and
   Equipment

Furniture

Books

Office Supplies

Service Contracts

Promotional Materials
   - Calendars
   - Pens

Cleaning Supplies

Medical Equipment

Repairs to Rental
   Property

Computer Equipment
   and Software

 

Signs

 

 

Medical Supplies

 

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