Use Tax: What It Is and When You Owe It
Last updated 06/09/2026 by
Ante Mazalin
Edited by
Andrew Latham
Summary:
Use tax is a tax you owe on items you buy without paying sales tax, typically from out-of-state or online sellers, when you use those items in your own state.
It is the companion to sales tax, designed to close the gap when sales tax was not collected.
- When it applies: You buy a taxable item but no sales tax was charged at purchase.
- The rate: Usually the same rate as your state and local sales tax.
- Who owes it: The buyer, who must report and pay it directly.
- Why it exists: To stop buyers from avoiding sales tax by purchasing elsewhere.
Most people pay sales tax at the register without thinking about it. Use tax covers the purchases where no one collected that tax, and the responsibility shifts to the buyer.
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What use tax is
Use tax is owed on taxable goods you buy without paying sales tax, then use, store, or consume in your home state. It applies most often to out-of-state and online purchases where the seller did not collect tax.
According to the USAGov guidance on state taxes, sales and use taxes are set by individual states, and use tax exists to apply the same rate to purchases that escaped sales tax at the point of sale.
The rate is generally identical to the sales tax rate you would have paid at home.
When you owe use tax
You owe use tax when a purchase would have been taxable in your state but no sales tax was charged. The duty to pay shifts from the seller to you, the buyer.
- Out-of-state purchases: Buying in a state with no sales tax and bringing the item home.
- Online or catalog orders: When the seller does not collect your state’s sales tax.
- Business purchases: Equipment or supplies bought tax-free and used in a taxing state.
If sales tax was already collected at the correct rate, you do not owe additional use tax on that item.
Good to know: Many states now require large online retailers to collect sales tax, which reduces how often individual buyers owe use tax. The obligation still applies to purchases where no tax was collected.
Use tax vs. sales tax
Sales tax and use tax are two sides of the same coin, charged at the same rate but collected differently. Sales tax is collected by the seller, while use tax is reported and paid by the buyer.
| Feature | Sales tax | Use tax |
|---|---|---|
| Who collects it | The seller at purchase | The buyer reports it |
| When it applies | Taxable in-state sale | Taxable item bought without sales tax |
| Rate | State and local sales tax rate | Usually the same rate |
The goal is for the same item to carry the same tax whether bought down the street or across a state line.
Pro Tip
Keep receipts for large out-of-state and online purchases where no sales tax was charged. Many state income tax returns include a line to report use tax, and documenting these buys makes it easy to report the right amount and avoid penalties later.
How use tax is paid
Individuals usually report and pay use tax on their state income tax return, often on a dedicated line. Businesses typically report it on their sales and use tax filings.
Some states provide a lookup table that estimates use tax based on income, so you do not have to track every small purchase.
How to handle use tax
- Identify untaxed purchases: Find taxable items you bought where no sales tax was charged.
- Check your state rate: Use your combined state and local sales tax rate.
- Calculate the tax: Multiply each purchase price by that rate.
- Report on your return: Enter the total on the use tax line of your state income tax return.
- Keep records: Save receipts in case the state asks for documentation.
Because rules and forms vary by state, checking your state tax agency’s instructions ensures you report correctly.
Related reading on consumer taxes
- Sales tax: the tax use tax mirrors when none was collected.
- Local taxes: the city and county taxes that affect the combined rate.
- Excise tax: a separate tax on specific goods like fuel and tobacco.
- States with no income tax: where state tax structures differ widely.
Frequently asked questions
What is use tax?
Use tax is a tax you owe on taxable items you buy without paying sales tax, then use in your home state. It commonly applies to out-of-state and online purchases where the seller did not collect tax.
How is use tax different from sales tax?
They are charged at the same rate but collected differently. Sellers collect sales tax at purchase, while buyers report and pay use tax directly when no sales tax was charged.
Do I really have to pay use tax?
Yes, if a purchase would have been taxable in your state and no sales tax was collected. Many states include a use tax line on the income tax return for reporting these purchases.
What is the use tax rate?
It is generally the same as your combined state and local sales tax rate. The point is to apply the same tax that would have been charged on an in-state purchase.
Do I owe use tax if the online seller already charged tax?
No. If the seller collected your state’s sales tax at the correct rate, you do not owe additional use tax. Use tax only fills the gap when no tax was collected.
Key takeaways
- Use tax applies to taxable items bought without paying sales tax, often out of state or online.
- The rate is usually the same as your state and local sales tax rate.
- The buyer is responsible for reporting and paying it, frequently on the state income tax return.
- You do not owe use tax if the correct sales tax was already collected.
- Keeping receipts for untaxed purchases makes accurate reporting easier.
Use tax is a small but real part of staying compliant at filing time. You can compare tax preparation and filing services to make sure state use tax is reported correctly on your return.
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