Articles · Basics · Sales and Use Tax
Sales Tax vs. Use Tax: What's the Difference?
Sales tax and use tax are two sides of the same system. Sales tax is collected by the seller at the point of sale, while use tax is due when tax was not charged on a taxable purchase.
When use tax applies
A common example is an out-of-state purchase where the vendor did not charge tax. The buyer owes use tax to their state, at the rate that would have applied. Businesses often owe it on office equipment, supplies, and software.
Taking inventory out of stock for company use can also trigger use tax.
Exemptions
Sales for resale are generally exempt, because tax is collected on the final sale. Other exemptions can apply to manufacturing, nonprofits, and government buyers. Sellers need a valid exemption or resale certificate, or they can be liable for the tax.
Staying compliant
Businesses should review accounts payable for purchases without tax, then accrue use tax on the return. Auditors often test fixed assets and expense accounts for this reason.
Sales tax is not generally a cost to a seller, but it becomes one when not collected. Taxability also varies widely, so a product exempt in one state may be taxable in another.
Key takeaways
- Use tax fills the gap when sales tax was not charged.
- Keep valid certificates for exempt sales.
- Review purchases for unpaid tax.
For general education only, not tax advice. Tax law changes often, so confirm current rules and amounts with primary sources.