Sales Tax vs Use Tax: What is the Difference?

Sales Tax and Use Tax Work Together

Sales tax and use tax are companion taxes. They are designed to prevent the same purchase from escaping tax simply because it was bought from a different type of seller or shipped from another state.

Sales tax is usually collected by the seller at the point of sale. Use tax is usually owed by the buyer when taxable goods or services are used in a state but sales tax was not collected at checkout.

What Is Sales Tax?

Sales tax applies to many retail sales of tangible goods and certain services. A store, marketplace, or other seller collects the tax from the customer and remits it to the relevant tax authority.

Because the United States does not have a federal sales tax, each state sets its own rules. Local governments may also add rates for city services, transportation, schools, or special districts.

What Is Use Tax?

Use tax applies when a taxable item is purchased without the correct sales tax being collected, then used, stored, or consumed in a state that taxes that item. The rate is often the same as the sales tax rate that would have applied locally.

A common example is an out-of-state purchase where the seller did not collect your state's tax. Another example is a business buying equipment from a vendor that does not have a collection obligation in the buyer's state.

Who Pays and Who Reports?

• Sales tax: Collected by the seller from the customer and remitted by the seller.
• Use tax: Self-assessed by the buyer when required and reported according to state rules.

Many states include a use tax line on personal income tax returns. Businesses may have separate filing processes, especially when purchases are part of operations or inventory.

Why Use Tax Exists

Use tax protects state revenue and keeps local sellers from being disadvantaged. Without it, a buyer could avoid tax by ordering from a seller that does not collect sales tax, even though the item is used in a taxable location.

Estimating Use Tax

If you need a rough estimate, use the standard calculator with your local combined rate and the taxable purchase price. For official reporting, confirm the rules with your state revenue department because exemptions, thresholds, and reporting methods vary.