Black Friday and Cyber Monday: Sales Tax vs. Use Tax

Nov. 18, 2013 – TaxTalk Blog

While some Hoosiers begin the holiday shopping season waiting outside retailers on Black Friday (some Thursday), others will wait indoors until Monday, Dec. 2, (aka Cyber Monday) to snag some of the best online deals retailers offer. Whatever your shopping preference is, both bring in the holiday cheer. And whichever way you shop, both carry a tax: sales tax or use tax.

Sales tax is a common tax paid on most items at retail stores. When you buy an item from a retailer (there are a few exceptions) you’ll pay Indiana’s 7 percent sales tax on that purchase. The retailer collects the tax and sends it to the state.

On the other hand, use tax is owed when a sales tax is not paid on purchases made over the internet or while traveling outside Indiana. Hoosiers shopping on Cyber Monday should check and see if their online purchases charge a sales tax; if not, they will owe use tax to Indiana. Although less known, this tax has been collected on the state income tax return since 1969.

While sales tax is collected at the time you buy something, you usually won’t pay the use tax on your purchase until you file your Indiana income tax return. Since 2013 state tax returns will be filed in a few months time, here’s the two step process:

Step 1: Complete the worksheet in the IT-40, IT-40EZ or IT-40PNR instruction booklet (2013 forms will be available online on Dec. 2, 2013) to help you figure how much use tax is owed.

Step 2: Enter the amount owed on Schedule 4 of Form IT-40, on Schedule E of Form IT-40PNR, or on line 8 on the Form IT-40EZ, depending on which form is filed.

For example, you paid $100 for three magazine subscriptions in 2013 and no sales tax was charged. You would report $7 use tax when filing your 2013 Indiana income tax return ($100 x 7%).

To learn more about Indiana’s use tax, read the Use Tax FAQs.

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