Sales tax vs use tax

Use tax is the half of the sales tax system that many small businesses do not know they owe. It applies to their own purchases, not their sales. This guide explains how it works and when a business needs to pay it.

By Muhammad Bilal, Chartered Accountant. Reviewed by Mirza Fahad Baig, Chartered Accountant. Checked against official sources on . 2 minute read.

Short answer

Sales tax vs use tax comes down to who pays it to the state. Sales tax is collected by the seller at the time of sale. Use tax is owed by the buyer when a taxable purchase was made without sales tax, for example from an out-of-state seller that did not collect. Rates are the same, so the state gets the same tax either way.

At a glance

Sales tax
Collected by the seller from the buyer
Use tax
Paid by the buyer when no sales tax was charged
Rate
Normally the same as sales tax where the item is used
Common triggers
Out-of-state purchases, resale items used internally
How businesses report it
On their sales tax return, or a separate use tax return
Credit
Usually given for sales tax paid to another state
Sales tax vs use taxSales tax: Collected by the seller from the buyer; Use tax: Paid by the buyer when no sales tax was charged; Rate: Normally the same as sales tax where the item is used; Common triggers: Out-of-state purchases, resale items used internally; How businesses report it: On their sales tax return, or a separate use tax return; Credit: Usually given for sales tax paid to another state.KEY FACTS AT A GLANCESales tax vs use taxSales taxCollected by the sellerfrom the buyerUse taxPaid by the buyer when nosales tax was chargedRateNormally the same assales tax where the itemis usedCommon triggersOut-of-state purchases,resale items usedinternallyHow businesses report itOn their sales taxreturn, or a separate usetax returnCreditUsually given for salestax paid to another stateChecked against official sourcesTax BakersSales tax vs use taxSales tax: Collected by the seller from the buyer; Use tax: Paid by the buyer when no sales tax was charged; Rate: Normally the same as sales tax where the item is used; Common triggers: Out-of-state purchases, resale items used internally; How businesses report it: On their sales tax return, or a separate use tax return; Credit: Usually given for sales tax paid to another state.KEY FACTS AT A GLANCESales tax vs use taxSales taxCollected by the seller from the buyerUse taxPaid by the buyer when no sales tax waschargedRateNormally the same as sales tax where theitem is usedCommon triggersOut-of-state purchases, resale items usedinternallyHow businesses report itOn their sales tax return, or a separate usetax returnCreditUsually given for sales tax paid to anotherstateChecked against official sourcesTax Bakers
Key facts at a glance, as set out in this guide.

How do sales tax and use tax compare?

Sales taxUse tax
Who pays it to the stateThe seller, from money collected from the buyerThe buyer, directly
When it appliesOn taxable sales by a seller with nexusOn taxable items used, stored or consumed in the state without sales tax having been paid
RateState and local rate where the sale is sourcedGenerally the same combined rate where the item is used
Reported onThe seller's sales tax returnThe buyer's sales and use tax return, or a use tax return

Why does use tax exist?

To stop buyers avoiding sales tax by buying from sellers that do not collect it. Use tax makes the tax the same whether an item is bought in the state or brought in from outside. Since most online sellers now collect sales tax, use tax matters less for consumers, but it still catches businesses.

When does a business owe use tax?

  • Buying equipment or supplies from an out-of-state seller that did not charge your state's sales tax.
  • Taking stock bought for resale tax-free with a resale certificate and using it in the business, or giving it away. See resale certificates.
  • Buying software, equipment or furniture from abroad that is taxable in your state.
  • Moving property into a new state where you start doing business, in some states.

How is use tax reported?

Businesses holding a sales tax permit usually report use tax on the same sales and use tax return, on a separate line. Businesses without a permit may file a use tax return or a consumer use tax line, depending on the state. Many states give a credit for sales tax already paid to another state on the same item. See how to file a sales tax return.

Why does it matter in an audit?

Sales tax audits review purchases as well as sales. Untaxed purchases of taxable items are a common audit finding, with tax, penalties and interest added. Checking invoices for sales tax as they are paid, and accruing use tax where none was charged, avoids it.

What does an example look like?

A business in a state with a 7% combined rate buys a $3,000 laptop from an out-of-state seller that charges no sales tax. The business owes $210 of use tax to its own state, reported on its next return. See how US sales tax works.

Not sure if you owe use tax?

We review your purchases for untaxed items, report use tax on your returns, and set up a process so it is handled each period.

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Questions people ask

What is the difference between sales tax and use tax?

Sales tax is collected by the seller. Use tax is paid by the buyer when a taxable purchase was made without sales tax.

When does a business owe use tax?

When it uses, stores or consumes taxable items in the state without paying sales tax, such as equipment from an out-of-state seller that did not charge tax.

Is use tax the same rate as sales tax?

Generally yes, the combined rate where the item is used.

How do businesses pay use tax?

Usually on their sales and use tax return, or on a separate use tax return if they have no sales tax permit.

Sources

Every fee, date and rule on this page was taken from these official and primary sources.

  1. California CDTFA: Tax Guide for the Marketplace Facilitator Act
  2. Texas Comptroller: Remote Sellers
  3. Streamlined Sales Tax Governing Board: sales and use tax definitions

Rules and fees change. If you are reading this long after September 30, 2026, confirm the figures with the source before you rely on them.

Sales tax basicsHow US sales tax works: a guide for small businessesOnline sellersResale certificates: buying inventory without paying sales taxSales tax basicsHow to file a sales tax return

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This guide is general information. It is not tax or legal advice for your situation.