Summary: Use tax is the companion to sales tax: if you buy something without paying sales tax and use it in your state, you owe use tax at your local rate. For businesses it is a routine self-reported line on sales tax returns, covering equipment, supplies, and software bought out of state. For individuals it usually applies to big-ticket online purchases from sellers with no nexus, and most states put a use-tax line on the income tax return.
Every state with a sales tax has a shadow tax most people have never heard of: the use tax. It exists to plug the hole that opens whenever a purchase escapes sales tax, whether because the seller had no nexus, the sale was exempt at the counter, or you simply bought it elsewhere and brought it home. Here is when it bites and how to handle it.
Use tax applies to the storage, use, or consumption of taxable goods in your state when sales tax was not collected at purchase. The rate is your local combined rate, the same rate you would have paid at a local store. Classic triggers: buying equipment from an out-of-state vendor that does not collect your state's tax, ordering online from a small seller below nexus thresholds, and bringing a vehicle or boat purchased elsewhere into your state (states enforce this one aggressively at registration).
The economic logic is neutrality: without use tax, every purchase would migrate to the lowest-tax seller, and local retailers would face a permanent disadvantage. With marketplace facilitator laws now covering most online sales, individual use-tax exposure has shrunk, but it has not disappeared.
For businesses, use tax is routine and heavily audited. It shows up on the regular sales tax return as a separate line: purchases of equipment, office supplies, and software from out-of-state vendors where no tax was charged get self-assessed at the business's local rate. Auditors love use tax because the records are sitting in accounts payable, and the most common findings are software subscriptions, out-of-state equipment, and items withdrawn from inventory for internal use.
The compliance fix is procedural: train purchasing to flag untaxed invoices, accrue use tax monthly rather than scrambling at return time, and keep exemption and resale certificates organized so auditors can distinguish truly exempt purchases from missed use tax. In an audit, the burden of proof is on you.
Most states put a use-tax line on the individual income tax return, asking you to report untaxed out-of-state purchases. Compliance is famously low, which is why states have shifted enforcement to the seller side through nexus and facilitator laws. The situations where individuals actually get caught are registrations: cars, boats, and aircraft bought out of state trigger use tax at the DMV or equivalent, with no honor system involved.
Buying a car in a no-sales-tax state to dodge your home state's tax does not work: you owe use tax where you register and garage the vehicle. States share registration data, and the penalties for evasion dwarf the tax. The same applies to boats and RVs, which is why these purchases generate a disproportionate share of individual use-tax enforcement.
The fastest-growing use-tax exposure for businesses is not equipment but software and digital goods. Many states now tax software-as-a-service, and vendors often do not collect correctly across all jurisdictions. A company paying $50,000 a year for SaaS tools from vendors that charge no tax may owe use tax on the full amount in its home state, self-assessed on the sales tax return. Auditors specifically target this category because it is large, recurring, and poorly tracked.
The fix is to classify purchases at the buying stage: taxable SaaS from untaxed vendors gets flagged for use tax accrual monthly. Waiting until year-end to reconstruct a year's software spend from credit card statements is how businesses discover five-figure liabilities plus penalties.
Sales tax is collected by the seller at purchase. Use tax is self-reported by the buyer when sales tax was not collected, at the same rate. They are two collection methods for the same tax.
Usually not anymore: marketplace facilitator laws require Amazon to collect sales tax in nearly every state, so the tax is already paid. Use tax applies to purchases where no tax was collected.
On the regular state sales tax return, as a separate line for untaxed purchases. It covers equipment, supplies, software, and inventory withdrawn for internal use.
No. You owe use tax in the state where you register and use the vehicle, enforced at registration. States share data and penalize evasion.
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Figures: 2026. Sources: the Tax Foundation (2026 Sales Tax Rates, Midyear Update, as of July 1, 2026), state revenue department websites, and the US Supreme Court (South Dakota v. Wayfair, 2018). This page is for planning only and is not financial, tax, or legal advice. Verify with the cited source or a qualified professional.