Featured resource

Register for the webinar

Hear from the experts on sales tax holidays, July filing due dates, and preparing for busy shopping days.

What’s the difference between use and sales tax?

by TaxJar May 20, 2026

Sales tax compliance comes in many forms, and use tax is one of them. You may see the term “sales and use tax” when applying for a sales tax permit in a state, filing a sales tax return in a state, or checking your economic nexus thresholds within a state.

What’s the definition of sales tax? What’s the definition of use tax? What’s the difference between use tax vs. sales tax? What states enforce use tax on the seller or the buyer?

Sales and use tax generally refer to the same thing: A percentage tax on the price of a sale that is collected by a merchant or consumer and remitted to the government. However, there are subtle differences in how these taxes are collected and remitted.

The difference between use and sales tax explained

What is sales tax?

Sales tax is a tax on the sale, transfer, or exchange of a taxable item or service, at the point of sale. Sales tax is added to the price of the item and charged to the consumer.

Businesses with nexus, meaning they have a physical presence or have reached the threshold of economic transactions or sales in that state, must charge state sales tax.

Sellers use tax

You may see the term “sellers use tax” as well, which is another term for sales tax. Seller use tax is a transaction tax, calculated as a percentage of the sales price, and remitted by an out-of-state seller to the state.

Sellers use tax only applies to “remote sellers,” which are generally defined as businesses who have nexus in the state (such as economic nexus) but who are not based in the state.

According to the Alabama Department of Revenue, “Sellers use tax is imposed on the retail sale of tangible personal property sold in Alabama by businesses located outside of Alabama which have no inventory located in Alabama, but are making retail sales in Alabama via sales offices, agents, or by any significant recurring contact or “nexus” with Alabama.”

What is use tax?

Use tax is a tax on the storage, use, or consumption of a taxable item or service on which no sales tax has been paid. Use tax is complementary to sales tax, meaning the two are mutually exclusive. Use tax is generally (but not always) collected at the same rate as sales tax.

States charge use tax on goods from out of state, where the seller did not have nexus. If the seller doesn’t have nexus, who pays use tax? The buyer.

Who pays use tax?

Use tax is paid by the buyer or the consumer, which is why this tax also is referred to as ‘consumer use tax.’ States charge use tax on goods from out of state, where the seller did not have nexus. If the seller doesn’t have nexus, the buyer must pay the tax.

Consumer use tax is paid directly by the purchaser to the state department of revenue by filing a use tax return or, in some states, by including an amount on the income tax return filed each year with the state.

States don’t generally do a great job of enforcing consumer use tax unless it’s on an expensive item, like a car or computer. States want to collect tax from in-state sellers, out-of-state sellers that reach economic nexus, and buyers who purchase goods from out-of-state without paying sales tax, in order to “level the playing field,” as California says.

According to the California Department of Tax and Fee Administration: “California’s use tax applies to the use, storage, or other consumption of items in the state. Generally, if sales tax would apply when you buy physical merchandise in California, use tax applies when you make a similar purchase without tax from a business located outside the state.The use tax, which was created in July 1935, is a companion to California’s sales tax that is designed to level the playing field between in-state retailers who are required to collect tax, and some out-of-state retailers who are not. Use tax, just like sales tax, goes to fund state and local services throughout California.”

What is the purpose of use tax?

When a remote seller doesn’t have economic nexus in a state, that particular state may lose out on sales tax revenue. Use tax helps bridge the tax gap; when the seller doesn’t have to pay sales tax, then the tax obligation falls on the buyer.

When do you pay use tax vs sales tax?

When the consumer realizes they have not been charged sales tax for a purchase, are they required to remit use tax? States have unique guidelines for use tax – some stipulate that tax is only owed when the buyer reaches a specific purchase threshold.

Consumers should research the guidelines in the state where they purchased a taxable item (that wasn’t assessed sales tax). However, five states do not impose sales tax, including Alaska, Delaware, Montana, New Hampshire, and Oregon.

In general, a consumer may owe use taxes if:

Sales tax wasn’t collected on an online sale (from an out-of-state vendor)
A business purchased items tax-free to resell but then used the items (vs. reselling them)
Sales tax wasn’t collected from a catalog purchase (and the item is taxable)
When you purchase goods in a tax-free state and bring the goods to your home state where those goods would be taxable (you owe taxes in your state)
If you paid a lower tax rate purchasing taxable goods in another state, you may owe the difference to your state

Sales vs use tax on SaaS and digital goods

The taxation on sales for digital products and software as a service (SaaS) varies across states. However, as more software moves to a subscription-based system, these tax laws may continue to evolve. In 2025, Louisiana made SaaS and other digital items taxable; sellers must now collect sales tax on digital books, games, and even digital codes that provide access for a product.

In Missouri, use tax applies to tangible property, which includes computer hardware and software. Businesses and their customers should assess individual state laws to understand taxability guidelines (and who is responsible for paying the tax).

Examples of use tax vs sales tax

If your business is based in Florida and you sell to customers in Florida, you charge them sales tax.

If your business is not based in Louisiana, but you have economic nexus there, you charge customers sellers use tax.

If you’re a consumer buying a car from New Hampshire, to be stored in Vermont, and you didn’t pay sales tax on that item when buying, then you may be charged use tax by the state of Vermont.

Sales tax vs use tax: A comparison

Use the table below to understand the key differences between sales tax and use tax. Remember that tax laws also vary by state.

	Sales tax	Use tax
Who pays	The seller pays the state department of revenue, although sales tax is typically charged to the consumer.	The buyer (consumer).
Payment frequency	Typically, businesses must remit sales tax payments monthly or quarterly; however, some businesses may pay annually based on state thresholds and laws.	Annually.
Tax rate	Varies by state and, occasionally, by county and municipality.	Use tax – like sales tax – may be a flat rate for the state, with additional tax rates assessed locally (and at the county level).
Online taxation guidelines	When an out-of-state seller reaches an economic nexus threshold in a state, they are required to begin collecting and remitting sales tax.	If a consumer purchases a taxable item online but isn’t assessed sales tax, they may be responsible for remitting use tax.

Trust TaxJar to simplify sales tax

Businesses or online sellers who need to collect and remit sales tax across many states can use TaxJar to automate every step of the sales tax process. Start a free 30-day trial today.

It's time to solve your tax complexity

Talk to a TaxJar expert about automating your sales tax compliance.

Book a demo