What may seem like a straightforward question to you actually raises several completely different situations.
If you purchased taxable goods on a wholesale basis, meaning you did not pay sales tax to the supplier, the end user must ultimately pay sales or use tax. (They are actually different aspects of the same tax in Nebraska.) This end user could be:
- Your customer — If you sell the goods onwards, your customer is the end user. You collect sales tax from the customer on behalf of the state tax authority and periodically remit that tax with your sales and use tax filing.
- Your business — If you end up using the goods for your business, such as an oil filter installed in your business vehicle, your business is the end user and must pay the use tax when you make your sales and use tax filing.
- You personally — If you divert goods from the business, for example by installing an oil filter purchased wholesale in your personal vehicle, you become the end user and you must pay either sales or use tax in some manner.
For the discussion below, I will assume you understand the first situation because you asked only about use tax.
Your business pays
If your business becomes the end user, it must pay the use tax. Because you seem to be filing your sales and use tax return quarterly, it could be up to 90 days between converting the wholesale goods to end use and remitting the tax. So you need a way to get the use tax liability into a tax liability account prior to actually paying it.
Do that with a journal entry. Credit a tax liability account for the amount of use tax due. Debit an expense account by the same amount. Be aware that you cannot use the placeholder Tax payable account for this purpose, just as you cannot use it for your regular sales tax code. That placeholder account is non-functional, as explained in the Guide about tax codes. If your tax filing form requires the amounts to be separated, I recommend you establish a separate tax liability account only for use taxes. This will simplify separation of amounts when you are completing the filing form.
The expense account you choose could be one of many, perhaps a vehicle maintenance account, or a taxes paid account, whatever is a suitable place for recording that expense. (Your accountant may have a preference about this.) Understand that the use tax paid on items used in your business is no different from other business expenses. It is only being allocated to a specific expense account for visibility.
When it’s time for your sales and use tax filing, you basically pay the balance of the tax liability account(s). Enter a payment transaction with one line for the amount of sales tax collected from customers and a second line for the amount of use tax. Post each line to its respective tax liability account. (This is why I recommended a separate use tax liability account.)
If you take items for personal use, payment of the use tax is not a business transaction. It is personal. You must comply with your state’s procedures for personal payment of use taxes.
One simple way to handle this is to convert the use tax back to a sales tax. Just sell the items from the business to yourself, applying the normal sales tax code. In other words, you treat yourself as an ordinary customer. Thus, there is no use tax, but only sales tax, and your business will pay the tax authority. This also takes care of the issue of how to properly reduce expenses claimed by the business. (It’s illegal for the business to claim an expense for a personal use item.) As a business, you can decide to charge yourself as a customer whatever you like. A common approach is to sell to yourself at wholesale cost, adding the sales tax. That way, there is no net effect on profit.
It gets a little beyond the scope of this discussion, but you don’t actually have to pay your business in that situation. You can treat the purchase as a withdrawal of capital from an equity account. The exact accounting entries would depend on your legal form of organization.
Another way to handle the situation is to write off the inventory converted to personal use. The inventory write-off should be posted to an owner’s equity or capital account (again, depending on your form of organization). Manager will post the amount as a debit to the equity account, having the same effect as making a draw.
The problem with the second approach is that it leaves the use tax unaccounted for. You would still have to follow your state’s procedures for paying use tax.
Obviously, the sale to yourself is more straightforward.