Depending on the state you live in, you may be asked at tax time if you have made any large online purchases for which you did not pay sales tax. Why is this, and what does it have to do with your tax return?
When you Pay Sales Tax at the Time of Online Purchases
When you make purchases online, the online retailer or store is supposed to charge you the amount of sales tax appropriate for your state if they maintain a physical location in the same state. For example, when buying on Amazon from Pennsylvania, you will be charged Pennsylvania’s 6% sales tax rate, because Amazon has physical locations in that state.
If that happens, you have met your sales tax obligation and are good to go!
When you Don’t Pay Sales Tax at the Time of Online Purchases
But sometimes, for various reasons, you may not be charged sales tax. It may be if you make a large purchase on eBay from a private seller; it may be if you purchase from a non-US retailer; or it may be for other reasons.
In those cases, the states work with the IRS at tax time to collect on the unpaid sales tax for goods purchased by you, a resident of their state. Sometimes this is paid in as a “use tax” with your state taxes.
Additionally, some states require you to pay a “Use Tax” for purchases you’ve made from an out of state retailer. Ohio is one such state. This law includes catalog purchases, as well as online purchases.
You will normally be asked as part of completing your tax forms whether you have purchased any goods for which you have not paid sales tax, and if so, the seller’s name, location and the dollar amount of the purchase. You will then pay the relevant sales or use tax for your state along with your tax return filing.
It is important to keep your receipts for large purchases throughout the year, whether or not you paid sales tax at the time, so that you have documentation should it be needed.