Everyone should experience sales tax, whether it’s buying something online or just getting gas at the gas station. In Tennessee, where one of our offices is located, the general sales tax rate is 7%. According to Tn.gov, state sales tax revenue accounts for around 60% of all tax collections. Of course, the seller is liable for collecting the sales tax but what about the other counterpart to sales tax? This would be known as use tax.
Use tax comes into play when the sales tax is not collected by the seller. This applies to goods that are brought or shipped into Tennessee, when it was not collected by the seller in the first place. This happens especially with subscription packages. Letter Ruling #21-04 says that software packages linked with subscription services should be sourced to the location in Tennessee that they were purchased from. However, it also states that subscription services with tangible property shipped into Tennessee should also be sourced to Tennessee. Lastly, if the service has no tangible property but includes: warranty contracts, video games and/or digital products, these should also be sourced to the subscribers address whether residential or business. For reference, this tax is calculated just like sales tax and is based on the sales price of the goods or services in question.
We want our clients to be aware of this potential for encountering use tax and to know that there are indeed forms to fill out to claim use tax. A Consumer use tax Return can be found on the Tennessee Department of Revenue website, where you can also find more information on the subject to see if it applies to you.
By: Luke Hamilton, Tax Staff at CROFT & FROST
Final Regulations Foreign Tax Credits