The “Myth” of Tax Free Shopping

shopping“The first thing to know about shopping in New Hampshire is that it is tax free!”

This is information pulled directly from the DiscoverNewEngland.org website. Indeed, the State of New Hampshire is eager to promote itself as a tax-free shopping haven. You may take this into consideration if you plan to cross the state line to “save” on taxes for your holiday shopping.

But is the claim true? Unlike the vast majority of states, including all other New England states, New Hampshire does not have a sales tax on goods or services. That means that if an item, such as furniture, a television or an iPad, is purchased in New Hampshire the vendor will not charge any sales tax, regardless of the residence of the buyer. Even if the purchaser is from a state that has a sales tax the New Hampshire seller is not required to charge the tax and remit it to the buyer’s home state.

However, that is not the end of the story.  Every state with a sales tax – including Massachusetts – also has a parallel “use tax.”  The definition of a “use tax” is simple – this is the amount which would have been paid by the resident or business located in the state if the asset had been purchased in the state.

The use tax applies to purchases made out of state and over the Internet for individuals and businesses. If you are a Massachusetts resident, the Department of Revenue has made it easy to pay your use tax.  Line 33 of the resident return provides a place to report the sales tax which should have been paid for out of state sales (including online sales) which did not charge state sales tax.

If you paid a sales or use tax to another state or territory of the United States when purchasing this item, you are generally entitled to a credit against the Massachusetts use tax, up to 6.25%.  If all that seems difficult for a resident to calculate or comprehend, don’t worry. The instructions for line 33 include an easy table you can use to estimate the use tax.

By the way, every tax return signed by a taxpayer and their return preparer states “Under penalties of perjury, I declare that to the best of my knowledge and belief this return and enclosures are true, correct and complete.”

The question of sales and use tax is complicated, in part because which items or services are subject to tax varies from state to state. It is estimated the unremitted use tax is in excess of $20 billion a year.

If you have any questions about the Massachusetts use tax or other tax issues, please call the Gray Gray & Gray Tax Department at 781-407-0300.

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