Sales Tax Guide · Updated November 7, 2026

Use Tax vs. Sales Tax for Businesses

Published November 7, 2026 · Reviewed by the USA Sales Tax Calculator editorial team.

Sales tax and use tax are two halves of the same system. Sales tax is collected by the seller at the point of sale. Use tax is owed by the buyer when the seller did not collect sales tax and the purchase would have been taxable in the buyer's state. The tax rate is usually the same, and the revenue goes to the same jurisdiction. The difference is who is responsible for reporting it.

When use tax applies

Use tax most often applies to out-of-state purchases, online orders from sellers without nexus, and purchases from a seller that did not collect tax because it treated the buyer as exempt. It also applies to taxable goods that a business removes from inventory for its own use, to free samples, and to certain purchases from a contractor or service provider where the seller did not collect tax on the materials. The buyer accrues the tax on its books and reports it on a use tax return, often on the same form as the sales tax return.

How use tax is calculated

Use tax is generally calculated on the purchase price, including shipping and handling when those charges are part of the taxable sales price. The rate is the combined rate for the location where the property is used or stored, not necessarily the buyer's billing address. A business that buys equipment online and uses it at a branch office should apply the rate for the branch location. If the seller collected tax in another state, the buyer may be entitled to a credit for the tax paid, usually limited to the home state's rate.

Example: a business in a 7.00% jurisdiction buys a $2,000 computer from an out-of-state seller that collects no tax. The use tax is $140.00. If the seller collected 5.00% tax in its own state, the buyer may owe the difference between 7.00% and 5.00%, or $40.00, depending on the credit rule. If the seller collected 8.00%, the buyer generally does not receive a refund for the excess, but the home state may allow a credit only up to its own rate.

Registration and filing

Many states require a business to register for use tax even if it has no physical presence, especially when it regularly purchases taxable goods from out of state. The registration may be combined with the sales tax permit or may be a separate use tax account. The return frequency usually matches the sales tax return frequency. Some states allow consumers to report use tax on their individual income tax return, but businesses generally must use a business return.

The filing should reconcile purchases, taxable use, tax accrued, and tax paid to other states. A common error is to accrue use tax on the full invoice price when the invoice includes exempt items or services. Another common error is to forget use tax on items that were purchased for resale but later removed from inventory for office use, donations, or samples.

Use tax and marketplace sales

When a marketplace facilitator collects tax on a third-party sale, the buyer generally does not owe use tax on that purchase. The facilitator's tax collection satisfies the obligation. The seller, however, may still need to report the sale and may need to exclude facilitated sales from its own collection. If the facilitator did not collect because the product was misclassified, the buyer may still owe use tax. Keep the marketplace invoice or order confirmation showing the tax collected.

Exemptions and credits

Use tax follows the same exemptions as sales tax. A purchase for resale, a purchase by a qualifying nonprofit or government entity, and a purchase of an exempt product category are generally not subject to use tax. The buyer must document the exemption, and the documentation should be available if the state audits the use tax return. A credit for tax paid to another state is also common, but the credit is usually limited to the amount that would have been due in the home state.

State examples

California imposes use tax on out-of-state purchases and allows a credit for tax paid to another state, generally limited to California's rate. Texasrequires businesses to accrue use tax on taxable items purchased outside Texas and allows a credit for legally imposed sales tax paid to another state.Florida has a use tax that applies to out-of-state purchases and a credit for tax paid elsewhere.New York requires use tax on taxable purchases from out-of-state sellers and provides a credit for tax paid to another jurisdiction. Washingtonhas a use tax that complements its retail sales tax and applies destination sourcing to remote purchases.

A business checklist

1. Identify purchases where no sales tax was collected.
2. Determine whether the item is taxable in the jurisdiction where it is used.
3. Calculate use tax on the taxable purchase price.
4. Apply any credit for tax paid to another state.
5. Report the tax on the correct return and keep the supporting invoices.
6. Review inventory withdrawals, samples, and donations separately.

The resale certificate guide explains how to document exempt purchases, theeconomic nexus guideexplains when a seller must collect in the first place, and themethodology page documents the rate data behind each calculator.

Use tax on inventory withdrawals

A business that buys inventory for resale and later removes an item for its own use owes use tax on that item. The tax is usually based on the cost of the item, not the retail price, although some states use fair market value. Common examples include office supplies taken from stock, samples given to customers, donations, and equipment converted from inventory to a fixed asset. The withdrawal should be documented with a memo and reported on the next use tax return.

A business that buys taxable goods from an out-of-state seller and receives a resale certificate request should confirm that the purchase is actually for resale. If the item will be used in the business, the certificate is not appropriate and use tax may be due. Theresale certificate guide explains the distinction.

Voluntary disclosure is often cheaper than an audit assessment. If a business discovers years of unreported use tax, it can approach the state's voluntary disclosure program, which may limit the lookback period and waive penalties. The program usually requires the business to register, file returns, and pay the tax and interest. Consult a tax professional before making a disclosure.