What Is Washington Use Tax? Who Needs to Pay? How to File?

Washington State use tax applies if you purchase taxable goods or services and don't pay sales tax. For example, if you purchase something in Oregon and bring it to your home or business in Washington, you must report the purchase and pay use tax accordingly. 

The rules and tax calculations are the same whether you're a business or individual taxpayer, but the reporting process varies. To help you out, this guide explains when you need to pay use tax, how to report it, and what happens if you fail to file. 

Key takeaways

• Use tax – similar to sales tax, but paid directly to the DOR and not collected at the point of sale.
• Use tax rate – same as the sales tax rate that would normally apply.
• How to file – individuals can file online or through the mail. Businesses should report use tax on their WA excise tax returns.
• Consequences of not paying – penalties of up to 39%, interest, and involuntary collection actions such as tax warrants and asset seizure. 
• Payment options – installment agreements and settlements, subject to DOR approval.

What is Washington State use tax?

Use tax is a consumption-based tax that applies in situations where you don't pay sales tax. Businesses and individuals may owe use tax if:

• They buy a taxable item out of state and don't pay sales tax, or pay a lower rate than applies in their area.
• They order a taxable item from a website or remote seller that doesn't collect Washington sales tax.
• They buy a taxable item from someone who doesn't have a sales tax certificate – for example, used furniture from Facebook marketplace. 
• A business converts a for-sale item to personal use. For example, if you purchase inventory from a wholesaler, you don't pay sales tax, but if you decide to keep that item for personal use, you must report it and pay use tax accordingly.

This list does not include every situation where you may owe use tax – if you're unsure, consult with a tax professional. The DOR also has a list of items and services subject to use tax.

Do you have to pay use tax on vehicles?

Yes, you must pay use tax on vehicles if you didn't pay sales tax, but you should not file a use tax return. Instead, you'll pay the tax to the DOR when you register the vehicle.

What's the difference between sales tax and use tax?

Sales tax is applied at the point of sale, paid by the buyer, collected by the seller, and remitted to the state. Use tax is paid directly by the buyer to the Washington DOR. 

How to file a use tax return in Washington

Individuals can file a use tax return online through the DOR's website, but they need a Secure Access Washington (SAW) user ID. Otherwise, you can file through the mail using Form 40 2412. You must note the seller, the location code, the amount of the purchase, and the tax due. There are multiple lines to note a variety of transactions, and then you calculate the total. 

You can send in a payment with the paper form. If you file your use tax online, the system will instruct you on how to make a payment – generally, you can set up an ACH transfer online, pay with a credit/debit card for a fee, or mail in a payment. 

Businesses should report use tax due on their state excise tax returns. Washington businesses use a single form to report sales and use tax, business & occupational (B&O) tax, and most other business taxes. Most businesses must file online, but you can get an exemption if you don't have internet access, don't have a bank account, or meet other guidelines. 

Report state use tax in Section II of the form -- simply note the gross amount of items/services purchased without paying state sales tax. Then, multiply that by the state sales tax rate of 6.5%. Then, in Section III, break down the purchases by location and calculate the applicable local tax. Then, add up the total of the local taxes. Finally, add all of your sales and use tax, as well as your other business taxes, at the bottom of the form and pay everything together. 

How do I know if I owe use tax?

You owe use tax anytime you buy a taxable good or service for use in Washington state. If you don't report the use tax voluntarily, the DOR may send you a notice, or they may discover the unreported tax in an audit. 

What happens if you don't pay use tax?

The DOR treats unpaid use tax like any other unpaid tax – they add interest and penalties to your account. You may apply for a payment plan or potentially even a Rule 100 settlement (only if the tax due is in dispute). But if you don't make payment arrangements, the state can pursue the tax involuntarily – i.e., you may face tax warrants (aka tax liens), wage garnishments, bank levies, or asset seizures. 

Unreported use tax may also cause the DOR to look more closely at your situation. They may decide to audit your business returns and ask for detailed information about your business or personal assets to determine whether or not you owe additional use tax. 

What if you have unreported use tax?

The best way to protect yourself is generally to report the tax proactively – the Department is a lot more willing to work with taxpayers who come forward voluntarily than with taxpayers they have to hunt down. 

Businesses that are not registered with the state may qualify for the Voluntary Disclosure program. To apply, you must reach out to the DOR before they contact you. If you qualify, the state will not apply penalties – penalties for unpaid Washington State taxes can get up to 39% of your tax liability if you also have an unregistered account. The state will also give you a limited lookback period, meaning they will only consider the last three years of taxes owed. However, you will have to pay interest backdated to the original due date.

When you should contact a tax professional

Dealing with the DOR on your own can be very confusing, frustrating, and time-consuming, and errors can subject you to higher than necessary tax liabilities and penalties. A tax professional can ensure that you pay the correct tax and negotiate with the WA DOR on your behalf. 

Consider contacting a tax professional if:

• You owe use tax on a purchase and aren't sure how to file or pay.
• The DOR has contacted you about use tax due on a purchase, and you don't believe that you owe the tax.
• The DOR has audited your use tax return (business or personal) and assessed additional tax against you. 
• You want help setting up a payment plan or applying for a settlement on your use tax liability.
• You have incurred penalties for unpaid use tax or late-filed returns. 
• The DOR has threatened to take involuntary collection actions against you.
• You have any other questions or concerns about use tax.

When choosing a tax professional, make sure you select a tax attorney, certified public accountant (CPA), or enrolled agent (EA) who's experienced with Washington tax problems and use tax in particular. Every state has its own rules, filing processes, collection procedures, and consequences of nonpayment – that's why it's critical to work with a professional who has experience in your state. 

How a professional can help

A licensed tax professional can help you deal with the following:

• Use tax calculation
• Filing use tax returns for individuals and businesses
• Penalty abatement
• Payment plans and settlements
• Negotiating with the DOR
• Answering your questions
• Audit representation

In all cases, the sooner you act, the better. But how do you find a pro? Your CPA may be able to help you, but often, they don't focus on resolution work. Instead, they deal primarily with bookkeeping and tax prep. That's why you need a professional who exclusively focuses on tax resolution work and has Washington State experience. 

TaxCure is designed to help you find a pro Start your search by entering the DOR in the search box, and also select the IRS if you're having federal tax problems. Then, to narrow down the results, select the type of tax you're dealing with (for example, use tax), and if relevant, you can also select a problem (for example, tax lien) and/or a solution (for example, installment agreements). 

Then, the site will give you a list of Washington tax pros with the exact experience you need. Review the list. Look at each pro's experience and read user-submitted reviews. Finally, set up a consultation with as many pros as you like until you find the right fit for your needs. Don't wait – start your search today and get the help you need.

FAQs about use tax in Washington State

What is use tax, and why would I owe it in Washington?

You owe use tax anytime you purchase taxable goods or services for use in Washington State without paying sales tax. Use tax is the same rate as the sales tax rate in your area.

Is use tax part of business taxes or personal taxes?

Both individuals and businesses may owe use tax. 

How can I tell if I owe use tax?

You owe use tax if you buy a taxable product or service and don't pay sales tax. You also owe use tax if you pay sales tax that's lower than the rate in your area. For example, say you buy something out of state with a 4% sales tax rate, but you bring it to your home or business in an area with a 7.5% sales tax rate. Then, you owe 3.5% use tax.

What happens if I ignore a use tax bill?

The Washington DOR will add penalties and interest to your tax liability. If you don't pay, they may file a tax lien and pursue involuntary collections against you.

Can I settle a Washington use tax debt?

If you prove that you cannot pay use tax in full due to limited assets and disposable income, the DOR may be willing to let you settle for less than owed through a Rule 100 settlement.