By JAMES N. MARKELS
Business owners in D.C. may have been surprised to get a notice in the mail last September informing them of a new retroactive “use tax” now owed on certain goods and services bought outside of the District, courtesy of the Fiscal Year 2013 Budget Support Act of 2012 enacted on June 22.
For businesses that had not previously obtained a use tax ID number, the notice also included an assigned number. The tax is not tricky, but there are some nuances of which business owners should be aware.
The tax applies to purchases of goods and services used by a business that were not otherwise subject to a sales tax in D.C. or another state — the typical example being online purchases such as Amazon, wine sellers and other similar online shopping sites. The use tax is paid through the Form FR-800A (filed annually on Oct. 20) or FR-800Q (quarterly, depending on the amount of tax incurred), which also cover sales taxes. These forms are available online, and if a business’s use tax liability is over $10,000 per period, it will have to file and pay electronically. Generally, covered purchases are taxed at a six percent rate, although some purchases, like alcohol, food and tobacco products, are taxed at a higher rate just like sales taxes on those types of items.
Importantly, the use tax only applies to employers — if an individual is self-employed or is otherwise not obligated to file a payroll withholding return in D.C., the business will not be subject to the tax, even if it received the use tax notice. Businesses in this situation should inform the D.C. Office of Tax and Revenue of that fact and request that its “use tax account” be cancelled.
The use tax also does not apply to those businesses that are currently required to collect and remit sales tax. In other words, this tax primarily hits doctors, lawyers, accountants, consultants, and others who provide professional services in the District of Columbia that are not subject to sales taxes.
Another important caveat is that the use tax only applies to those goods and services used, stored or consumed in the District. For example, if the D.C. office of a business orders a book online for delivery to a Maryland office for use there, the District use tax does not apply. However, the same book purchased by the Maryland office but delivered to the District would be subject to the use tax. What matters is the delivery location of the purchased goods or services, not the location from where the goods or services are ordered.
There are other exceptions to the use tax under federal and state laws that are largely similar to the exceptions for sales taxes. If the product or service you purchased is not subject to sales tax, it likely is not subject to the use tax either. The use tax, after all, is intended to act as a substitute sales tax.
It is important to keep in mind that businesses subject to the use tax must file the appropriate return even if no use tax was incurred. Failure to timely file the return can result in a delinquency notice and penalties, even if no tax is owed.
As with any tax matters, businesses should consult its tax preparer or a tax attorney with particular questions regarding D.C.’s new use tax.
(The contents of this article are intended for general informational purposes only and should not be considered legal advice.)
This is part of a series of monthly articles by Jackson & Campbell on legal issues of interest to the LGBT community. Celebrating its 125th Anniversary, Jackson & Campbell is a full service law firm based in Washington with offices in Maryland and Virginia. Those with questions regarding this article, contact James N. Markels at 202-457-1610 or firstname.lastname@example.org. Those with questions regarding the firm should contact Don Uttrich, who chairs its Diversity Committee, at 202-457-4266 or email@example.com.