Sales Tax vs. Use Tax – What’s the Difference?

Sales Tax

A sales tax generally applies to transactions within a state, or a particular jurisdiction within a state, and is paid at the point of purchase. Typically, the amount of the tax is calculated by applying a percentage rate to the taxable price of a sale.

In some cases a portion of the sale may be exempt from the calculation of tax, or certain goods may be totally exempt (e.g., food and medications in numerous states).  Depending on the jurisdiction, the tax may be required to be included in the price (tax-inclusive) or added to the price at the point of sale.

Sales taxes generally are collected from the buyer by the seller, who remits the tax to a government agency. Sales taxes are commonly charged on sales of goods, but many sales taxes are also charged on sales of services.

Use Tax

A use tax is a type of excise tax, paid by a purchaser who stores, uses or consumes within a state or other taxing jurisdiction any tangible personal property purchased from an out-of-state seller (unless the vendor charges sales tax). The buyer is responsible for remitting a use tax to the taxing jurisdiction.

Use taxes typically are assessed at the same rate as the sales tax that would have been charged had the same goods been purchased in-state.  The federal legislation now under consideration to empower states to collect taxes on sales by online retailers outside the state would in fact be facilitating imposition of use taxes.

The assessing jurisdiction may make the use tax payable annually, but some states require a monthly payment.