Definition
Use tax is a US state tax on taxable goods and services bought for use in a state when no sales tax was charged at purchase, typically on out-of-state or online purchases. It is the counterpart of sales tax, usually at the same rate, and is paid by the buyer directly to the state.
Also called: Consumer use tax, Seller's use tax
Use tax in practice
Use tax closes the gap when a seller is not required to collect a state's sales tax, for example a small out-of-state vendor without nexus in the buyer's state. The buyer is then responsible for reporting and paying the tax.
Businesses typically report use tax on their regular sales and use tax return. Individuals in many states report it on their state income tax return.
Use tax also applies when a business buys items tax-free for resale with a resale certificate and then uses them itself instead of reselling them.
Example
A Colorado design studio buys a $3,000 monitor from an out-of-state seller that charges no sales tax. The studio owes Colorado use tax on the purchase and reports it on its next sales and use tax return.
Frequently Asked Questions
What is the difference between sales tax and use tax?
Sales tax is collected by the seller at the time of sale. Use tax is paid by the buyer when sales tax was not collected on a taxable purchase. The rate is usually the same.
Do I need to show use tax on my invoices?
Usually no. Use tax is the buyer's obligation. Some sellers registered in the buyer's state collect it on their invoices as "seller's use tax", in which case it is shown like sales tax.
Related terms
- Sales tax Sales tax is a consumption tax added to the price of goods and some services at the point of sale, collected by the seller and remitted to the state or local government.
- Tax exempt A tax-exempt sale is one on which no sales tax, VAT, or GST is charged because the buyer, the product, or the transaction qualifies for an exemption.
- Accounts payable Accounts payable is the total amount a business owes to its suppliers for goods and services received but not yet paid for.
This page is for general information only and is not legal, tax, or financial advice. Rules change and vary by location, so consult a qualified lawyer or accountant about your situation.