Avoiding Sales Tax with Fake Shipping? What You Need to Know About Use Tax

A jeweler recently suggested that if an engagement ring were “shipped” out of state, the buyer could avoid paying sales tax.
After taking the buyer’s out-of-state address, the jeweler handed the ring directly to the couple in the store — allowing them to walk out without paying sales tax.

Here’s the issue: using an out-of-state shipping address to avoid sales tax on an in-store pickup is illegal.
The sale took place at the retail location, and sales tax is due in that state, regardless of what address the jeweler writes down or whether an empty box is shipped later.

Why This Is Tax Avoidance

The jeweler’s action: Advising the use of an out-of-state shipping address to avoid sales tax — while giving the ring to the buyer in-store — is considered fraudulent.

Your action: Accepting the ring in the store means the taxable event occurred in-state. A shipped empty box is a major red flag for tax authorities.

Sales Tax vs. Use Tax

• Sales tax is collected at the time of purchase by the retailer.
• Use tax is owed by the consumer when an out-of-state or online seller does not collect sales tax.
• If the ring were genuinely shipped out of state, the receiving party may owe use tax — but since the ring was picked up in-store, sales tax is due in the jeweler’s state.

Top 10 Things to Know About Use Tax

• Use tax mirrors the sales tax you would have paid in your home state.
• It complements sales tax — not replaces it.
• Applies to out-of-state and online purchases.
• It is self-assessed and paid by the buyer.
• Rules vary by state.
• Applies when using, storing, or consuming an item in-state.
• State-specific tax rates apply.
• Applies to both business and personal purchases.
• Sales tax exemptions also apply to use tax.
• Penalties apply for non-payment.