Use tax is a state tax you owe on purchases where no sales tax was collected, charged at the same combined state and local rate that would have applied if you had bought the item at home. It exists so that buying from an out-of-state seller, a foreign retailer, or a private party does not let you skip the tax your neighbor pays at the local store. Forty-five states and the District of Columbia impose a sales tax, and nearly all of them pair it with a use tax. The five states with no statewide sales tax (Alaska, Delaware, Montana, New Hampshire, and Oregon) have no use tax either.
What Use Tax Is and Why It Exists
Think of use tax as the backstop to sales tax. The trigger is simple: you buy a taxable item or service, no sales tax is collected at the register, and you then store, use, or consume that item in a state that taxes it. At that point, you owe use tax on what you paid.
States enacted use tax primarily for fairness to local retailers. Without it, any purchase from a seller outside the state would come in cheaper than the same purchase down the street. The second reason is revenue protection. As more commerce crosses state lines, untaxed sales would quietly drain state budgets.
The rate is not a separate figure. It matches the combined state and local sales tax rate where you use or store the item. A location with a 4% state rate and a 2% county rate produces a 6% use tax on the untaxed purchase. You never owe both sales tax and use tax on the same transaction. If the seller collected sales tax, you are done. If the seller did not, use tax fills the gap.
The practical difference between the two is who does the work. Sales tax is invisible to the buyer because the seller handles it. Use tax is self-assessed, which is why it slips past so many people and surfaces during audits.
When You Actually Owe Use Tax
For consumers, the situations that still trigger use tax have narrowed, but they have not disappeared. The common ones:
- Purchases from sellers who do not collect tax. Small online retailers, independent websites, and sellers in no-sales-tax states (buying furniture directly from a craftsperson in Oregon, for example) often send no tax to your state.
- Purchases from foreign retailers. Goods bought from overseas rarely include state sales tax. Federal customs duties are separate charges that go to the federal government and do not satisfy your state obligation.
- Private-party sales. Buying a boat, equipment, or other tangible property from another individual usually means no sales tax changed hands.
- Vehicles bought out of state. This is one of the most common real-world triggers. The state typically collects use tax when you register or title the vehicle at the DMV, so you do not have to remember to self-report.
- Items bought tax-free elsewhere and brought home. If you travel to a lower-tax or no-tax state and bring purchases back, use tax may apply on the full amount or on the difference between rates.
Why Online Shopping Rarely Triggers It Anymore
If you buy from Amazon, eBay, Etsy, Walmart.com, or almost any major platform, sales tax is already on your receipt. Two legal shifts in quick succession produced that result.
The first was the Supreme Court’s 2018 decision in South Dakota v. Wayfair, Inc., which allowed states to require out-of-state sellers to collect sales tax once they exceed an economic threshold, commonly $100,000 in sales or 200 transactions in the state.1Supreme Court of the United States. South Dakota v. Wayfair Inc. That overturned decades of precedent requiring physical presence before a state could compel collection.
The second was the rapid spread of marketplace facilitator laws. These require the platform itself (Amazon, eBay, Etsy) to collect and remit tax on behalf of third-party sellers, so individual sellers do not have to navigate thousands of local tax jurisdictions. The combined effect is that most online purchases arrive with sales tax already paid, meaning no use tax is owed.
The gaps that remain are real, and they are where state auditors look: small independent websites, direct purchases from overseas, private-party transactions, and sellers that fall below a state’s economic nexus threshold.
When Businesses Owe It
Businesses hit use tax exposure far more often than consumers, and it is consistently one of the top findings in state audits. The dollar amounts are larger and the transactions more frequent.
Out-of-State Vendor Purchases
When a company buys office equipment, computer hardware, machinery, or supplies from a vendor that does not collect tax, use tax is owed. Not every vendor has nexus in every state, and purchasing departments do not always flag untaxed invoices.
Inventory Converted to Business Use
Inventory bought under a resale certificate is purchased tax-free on the understanding that it will be sold. If the business pulls items from that inventory for its own use (a retailer takes a desk off the shelf for the back office, a parts distributor uses components for internal repairs), use tax is owed on the cost of those items. Auditors love this one because the paper trail is easy: the exemption certificate says “for resale,” and the item never got resold.
Digital Goods and Software
Tax treatment of digital products is a patchwork. Roughly half of states tax some form of digital goods (downloaded software, e-books, streaming subscriptions, or SaaS) under their sales and use tax, and the rules vary dramatically from one state to the next. Some tax downloaded software but not cloud subscriptions. Others tax streaming media but not business SaaS tools. If a vendor does not collect, check whether your state treats the purchase as taxable. Getting this wrong costs money either way, in audit assessments or in overpaying tax you do not owe.
International Purchases
Goods purchased from foreign sellers are subject to use tax like any other untaxed purchase. The federal government may collect customs duties and tariffs, but those payments do not reduce or satisfy state use tax. Following the 2026 suspension of the federal duty-free de minimis exemption, even low-value international shipments now face federal duties and fees at the border.2The White House. Continuing the Suspension of Duty-Free De Minimis Treatment for All Countries State use tax applies on top of whatever is paid federally.
Credit for Tax Paid to Another State
You generally do not get taxed twice on the same purchase. Most states allow a credit against use tax for sales or use tax you legitimately paid to another state on the same item. Buy furniture in a 5% state and bring it home to a 7% state, and you typically owe only the 2% difference. If the rate you already paid equals or exceeds your home state’s rate, you owe nothing more, though the other state will not refund the overage.
To claim the credit, you need proof: a receipt showing the amount or rate charged by the other state. The credit applies only to actual sales or use tax, not to federal excise taxes, customs duties, or foreign taxes. Some states also require reciprocity, meaning they give credit only for tax paid to states that would do the same in reverse. Keep your receipts from out-of-state purchases, because claiming the credit without documentation is a quick way to lose it in an audit.
How to Report and Pay It
Calculating use tax is simple arithmetic: multiply the purchase price by the combined state and local rate for the location where you use or store the item. The harder part is remembering to do it and knowing where to report it.
Individual Consumers
Most states fold use tax reporting into the annual state income tax return. You will find a line specifically for use tax, and many states offer a simplified option: a lookup table based on your adjusted gross income that lets you report an estimated amount for small purchases without itemizing each one. If your untaxed purchases significantly exceed the table amount, you are expected to calculate and report the actual figure. People who do not file a state income tax return (because their state has none, for instance) may need to file a separate use tax form.
Businesses
Businesses registered for sales tax report and remit use tax on their regular sales and use tax return, usually monthly or quarterly. The use tax owed on the company’s own purchases goes on the same form as the sales tax collected from customers. Companies not registered for sales tax, perhaps because they do not make retail sales, may need to file a separate business purchaser’s use tax return. Form names and filing frequencies vary by state.
Penalties and Audit Exposure
Use tax is where auditors earn their keep. State revenue departments know that most consumers and many businesses underreport it, and audit programs are built to find it. The typical look-back period is three to four years, extending to six years or longer if a return was never filed or the amount reported was significantly understated. Fraud can eliminate the statute of limitations entirely.
Penalties for non-payment generally run from 5% to 25% of the unpaid tax depending on the state and how late the payment is. Interest accrues on top, often at 7% to 12% annually. For businesses, multi-year non-compliance can compound into six-figure assessments once back taxes, penalties, and interest stack up. Collecting tax from customers and failing to remit it is treated as fraud in most states and can carry criminal charges.
If you discover years of unreported use tax, a voluntary disclosure agreement may limit the damage. Most states offer these programs, typically waiving penalties and capping the look-back at three years in exchange for coming forward before the state contacts you. Once an audit notice arrives, that option is gone.