Use tax is a state tax you owe on things you bought without paying sales tax at checkout. It applies at your state’s sales tax rate and covers purchases from out-of-state retailers, online sellers who didn’t charge tax, private-party sales, and goods you brought home from a lower-tax state. Every state that has a sales tax also has a use tax, so residents can’t avoid taxation by shopping across state lines. Alaska, Delaware, Montana, New Hampshire, and Oregon have no general sales or use tax.
The rate is the same as sales tax. The difference is who pays it in. Sales tax is collected by the seller. Use tax is on you: you calculate it, report it, and send it to the state yourself. The two are mutually exclusive on the same purchase. If the seller already charged the full sales tax, nothing more is owed.
When You Owe Use Tax
The obligation shows up in a handful of everyday situations:
- Online purchases where the retailer didn’t collect your state’s sales tax. This is less common than it used to be, but smaller and niche sellers still fall below the thresholds that would force them to collect.
- Cross-border shopping. Buying furniture, electronics, or appliances in a state with no sales tax or a lower rate and bringing them home triggers use tax where you live.
- Vehicles, boats, and heavy equipment bought in another state and registered in yours. This is one of the most reliably enforced scenarios because registration requires proof of tax payment.
- Catalog and mail-order purchases from vendors that don’t collect your state’s tax.
- Private-party sales. Buying a used item from an individual rather than a business doesn’t automatically make the transaction tax-free. Many states require use tax on private sales of vehicles, boats, and other titled property.
Businesses owe use tax on the same footing. If a company buys office equipment, software, or supplies from an out-of-state vendor that didn’t charge tax, the business owes use tax the same way an individual would.
Why Untaxed Purchases Still Exist
Two changes shrank the pool of untaxed online sales considerably. In 2018, the Supreme Court held in South Dakota v. Wayfair, Inc. that states can require out-of-state sellers to collect sales tax based on their economic activity in the state, not just their physical presence.1Supreme Court of the United States. South Dakota v. Wayfair, Inc., No. 17-494 Most states now set that threshold at $100,000 in annual sales, some also counting transaction volume.2Streamlined Sales Tax. Remote Seller State Guidance Every state with a sales tax has also passed a marketplace facilitator law, which forces platforms like Amazon, eBay, Etsy, and Walmart Marketplace to collect tax for their third-party sellers.3Streamlined Sales Tax. Marketplace Facilitator State Guidance
Gaps remain. Sellers below your state’s economic threshold still don’t collect. Private sellers don’t collect. And nothing about these laws changes what happens when you drive home from a trip with a trunk full of goods bought in a lower-tax state. If a purchase arrives with no tax on the receipt, the obligation is yours.
When You Don’t Owe It
Use tax exemptions generally mirror sales tax exemptions in the same state. If an item would be exempt from sales tax where you live, it’s exempt from use tax too. Common categories across most states include unprepared groceries, prescription medication, items bought for resale (documented with a resale certificate),4Multistate Tax Commission. Uniform Sales and Use Tax Resale Certificate – Multijurisdiction manufacturing machinery and raw materials, and agricultural supplies like feed, seed, and fertilizer. Some states also exempt clothing under a set dollar amount, medical devices, or residential energy. The specific list varies, so check your state revenue department’s guidance before assuming a purchase qualifies.
Credit for Tax Paid to Another State
If you already paid sales tax to another state on a purchase, you get a credit against what you’d otherwise owe at home. How it plays out:
- You bought in a state with a lower rate. You owe your home state the difference. Pay 5% there, live in an 8% state, owe 3%.
- You bought in a state with a higher rate. You owe nothing at home. You also don’t get a refund of the excess.
- You bought in a state with no sales tax. You owe the full amount to your home state.
The credit only covers legally imposed sales or use taxes paid to another state. Tourist fees, surcharges, and other non-tax line items on a receipt don’t count.
How to Calculate What You Owe
Multiply the purchase price by your combined state and local tax rate. Combined rates range from around 4% in low-tax areas to more than 10% in the highest-rate jurisdictions. State revenue departments publish rate lookup tools where you can enter an address or zip code and get the exact figure.
Shipping and handling are part of the taxable amount in many states, so include those charges when they apply. If you’re not sure how your state treats shipping, check its guidance before filing.
How to Report and Pay
Most states put a use tax line directly on the individual income tax return. Total your untaxed purchases for the year, apply your rate, and enter the amount. Many states also offer a lookup table based on adjusted gross income that lets you estimate use tax without itemizing every purchase. The table is easier, but it usually underestimates for heavy online shoppers.
States without an income tax use a separate use tax return. Businesses with regular obligations generally file separately as well, often quarterly. Individual filing deadlines usually track April 15. Payment options normally include electronic bank transfer, credit card through the state’s portal, or a check with a payment voucher.
Penalties, Audits, and Records
Skipping use tax is common, and the risk is real. State penalties on unpaid use tax typically run from 5% to 25% of the balance, depending on how late the payment is and whether the underpayment looks intentional. Interest accrues from the original due date. Deliberate evasion can bring criminal charges in some states, though prosecution is rare for individuals and is aimed more often at businesses with large unpaid balances.
State auditors generally reach back three to four years, and fraud or a failure to file can extend that window considerably.5Multistate Tax Commission. Lookback Periods for States Participating in National Nexus Program They pull shipping records, bank statements, and credit card transactions to identify untaxed purchases. Businesses draw more scrutiny than individuals because the numbers are larger and the records are easier to work with.
Keep receipts for out-of-state and online purchases for at least four years.6Internal Revenue Service. Recordkeeping An organized file is the best defense if your state asks questions later, and it turns the annual calculation into a quick sum rather than a reconstruction from memory.