Update January 4, 2013 – Starting with the 2012 Arizona income tax return the Arizona use tax no longer needs to be reported on the tax return. For more details read our January 2013 article. However, the use tax still needs to be paid to the state and local city so the rest of this article is still relevant to help you with use tax issues.
Since 1955 Arizona has required individuals to pay use tax. The only way to report this is to mail in the use tax to the Arizona Department of Revenue (AZDOR). In 2011 the Arizona Legislature passed a law allowing the AZDOR to include a line on the Arizona individual income tax return 140, 104A or 140EZ for individuals to report their use tax for the year. This started with the 2011 tax returns but was then repealed in 2012 so that it only applied to 2011 tax returns.
Note that businesses report use tax on their sales tax returns.
What is use tax?
It is basically the sales tax due on items purchased online, by phone or catalog from out of state retailers. Often these out of state retailers will not charge Arizona sales tax because they are not required to do so unless they have some sort of physical presence in Arizona. The most common examples are Amazon and a lot of other on-line retailers. Starting from February 1, 2013 Amazon will start charging Arizona sales tax on Arizona purchases.
Use tax may also apply if you go to another state to buy something and bring it back to use in Arizona. However, in this situation you do get credit for any sales tax you may have paid in the other state.
How Do I Report The Use Tax?
You basically mail in the use tax to the AZDOR. You will add up all your taxable purchases that have not been subject to sales tax and multiply it by the state use tax rate, which is currently 6.6%. This will give the use tax to be paid to the state.
One thing to bear in mind is that most local cities also collect use tax and that will need to be reported separately to the local city.
The key to keeping your use tax to the minimum is to only include purchases that are taxable. Remember to exclude anything on which you have already paid sales tax. Also exclude purchases that are exempt such as prescription medicines, food and casual sales.
You can get more information from Pub 610A Arizona Use Tax For Individual Income Taxpayers.
What If I Don’t Report The Use Tax On My Tax Return?
If you fail to correctly report the use tax you may be subject to penalties and interest.
Disclaimer – This article does not constitute personal tax advice to the reader and is only offering general information. You should seek professional advice for your own situation as the most appropriate tax planning depends on your personal and unique circumstances.