SUT tax is shorthand for sales and use tax, a two-part consumption tax that most state and local governments charge on purchases of goods and, increasingly, services. The sales tax half is collected by the retailer at checkout. The use tax half is owed directly by the buyer when a seller doesn’t collect sales tax, typically on out-of-state or online purchases. Together they form a single system: whichever side of the transaction the tax comes from, the state gets paid.
Forty-five states plus the District of Columbia impose some form of sales tax. Combined state and local rates average 7.53 percent nationwide as of early 2026, and the money funds roads, schools, law enforcement, and other public services.
How the Sales Tax Half Works
When you buy something from a retailer in your state, the seller adds a percentage to your purchase price, collects the total, and forwards the tax to the state. Combined state and local rates run from around 4.5 percent in less-taxed areas to over 10 percent in high-rate jurisdictions. Louisiana tops the list at a combined average of 10.11 percent. Hawaii, Maine, and Wyoming sit below 6 percent. Five states impose no statewide sales tax at all: Alaska, Delaware, Montana, New Hampshire, and Oregon, though some Alaskan localities levy their own.
Sellers are collection agents, not taxpayers in the ordinary sense. Most states treat the money a retailer collects as held in trust for the taxing authority, not as the business’s own funds. That distinction shows up later, when things go wrong.
How the Use Tax Half Works
Use tax exists to close a gap. If you buy something from a seller who doesn’t collect your state’s sales tax, you technically owe the equivalent amount directly to your state. The classic example: buying a car in a state with no sales tax and registering it in your home state where the rate is 6 percent. You owe 6 percent use tax on that purchase. The same principle applies to online orders from small vendors that haven’t crossed the sales-volume thresholds that trigger collection duties.
Individual compliance on everyday purchases has always been spotty, and states know it. Many states include a use tax line on the state income tax return so you can report and pay it with your annual filing. Some offer a simplified lookup table based on income so you don’t have to track every out-of-state purchase.
For businesses, use tax is a much bigger deal. Companies are regularly audited on these payments, and unpaid use tax triggers interest and late-payment penalties that can exceed the original amount owed.
For individuals, the practical importance of use tax has shrunk since 2018. The Supreme Court’s decision in South Dakota v. Wayfair opened the door for states to require remote sellers to collect sales tax directly. Every state with a sales tax now has economic nexus rules, so tax gets handled at checkout for the vast majority of online purchases. The most common threshold that forces a remote seller to start collecting is $100,000 in annual sales into the state or 200 separate transactions, though California and Texas set the bar at $500,000 in gross sales and some states have dropped the transaction count entirely.
Which Rate Applies to Your Purchase
When a transaction crosses city or county lines, the rate that applies depends on your state’s sourcing rule. About a dozen states, including Texas, California, Ohio, and Pennsylvania, use origin-based sourcing for in-state sales: the rate is based on where the seller is located. The remaining states use destination-based sourcing, which applies the rate where the buyer receives the goods. For online and out-of-state purchases, nearly all states default to destination-based sourcing regardless of their rule for in-state sales.
That’s why your total rate often reflects a stack of levies from different authorities. A single purchase might include a state tax, a county tax, a city tax, and a special-district tax for transit or education. Each layer comes from a different legislative body, and each can change independently.
Why Online Retailers Now Charge You Tax
Before 2018, a state could only force a seller to collect sales tax if that seller had a physical presence there. Wayfair overruled the physical-presence requirement, holding that states may require collection from any seller with a “substantial nexus” in the state, even one operating entirely online from another state.
The follow-up piece is marketplace facilitator laws. If you sell through Amazon, eBay, Etsy, or a similar platform, the marketplace itself handles sales tax. Every state with a sales tax has enacted a law shifting collection and remittance from individual third-party sellers to the platform. Because large platforms blow past the thresholds in every state almost immediately, sales tax collection is automatic for the vast majority of marketplace transactions. Individual sellers on those platforms generally don’t need to collect separately for marketplace-facilitated sales, though they remain responsible for sales made through their own websites.
What’s Exempt From SUT
Not everything that changes hands triggers SUT. Exemptions exist to avoid taxing necessities, to prevent taxing the same item twice, and to support specific policy goals.
- Groceries and prescription medicine are exempt in most states, though definitions vary. Candy and soft drinks are often taxed even where other food is not. A few states tax all groceries but offer an income tax credit to offset the burden on lower-income households.
- Resale purchases are exempt when a retailer buys inventory from a wholesaler and provides a resale certificate. The tax is collected only once, at the final sale to the consumer.
- Federal, state, and local government entities are generally exempt, as are qualifying nonprofits. Buyers present an exemption certificate at the time of purchase.
- Casual or occasional sales between individuals, like selling your used couch on a neighborhood app, are generally not taxable, provided the seller isn’t in the business of making retail sales.
- More than 20 states offer sales tax holidays, usually tied to back-to-school shopping or disaster preparedness, during which qualifying items are exempt up to set price thresholds. Dates, categories, and caps change annually.
What Businesses Owe and What Happens If They Don’t Pay
Businesses registered for sales tax file periodic returns reporting taxable sales, exempt sales, and tax collected. Filing frequency depends on volume: monthly for high-volume sellers, quarterly for moderate ones, annually for the smallest. Most states require electronic payment through their tax agency portal.
Some states offer a small vendor discount, usually 1 to 5 percent of the tax collected, as compensation for the cost of collection. It applies only if you file and pay on time. Miss the deadline and late-filing penalties kick in, typically a flat minimum or a percentage of the tax due for each month overdue, whichever is greater. Interest runs until the balance is paid.
The consequences escalate sharply for a business that collects tax from customers and then keeps it. Because sales tax is held in trust for the government, keeping that money is treated more seriously than simply underpaying a business tax. Intentional failure to remit collected sales tax can result in criminal charges, including felony prosecution in cases involving larger dollar amounts.
Personal liability is the piece most owners miss. Individual officers and owners can be held personally liable for unremitted trust-fund taxes even if the business is a corporation or LLC. The state can pierce the entity and pursue whoever had authority and day-to-day control over paying the taxes: the people who signed checks, managed finances, or ran the operation during the period the money went unpaid. A corporate structure does not shield you from a sales tax debt you collected and didn’t turn over.