Use tax is a sales tax you owe on items you buy from out-of-state sellers and bring into your state

A use tax is a tax on goods you purchase outside your state and then use, store, or consume inside your state. It exists because sales tax is based on where you buy something, not where you live. If you buy from an out-of-state seller who does not collect your state's sales tax, your state expects you to pay use tax instead — at the same rate as the local sales tax would have been.

The core idea is simple: your state does not want people to avoid sales tax by shopping across the border or online. Use tax closes that gap. You owe it whether you drive to another state to buy something, order from an out-of-state website, or have it shipped to you. The tax rate is usually identical to your state's sales tax rate for that item.

Most people do not pay use tax because most out-of-state sellers now collect sales tax automatically — Amazon, Walmart, Target, and most major retailers do this. But use tax still matters if you buy from a small seller who does not collect it, or if you buy something in person while traveling and bring it home.

Key Takeaways

  • Use tax applies to items you buy outside your state and bring in, at the same rate as your state's sales tax.
  • You owe use tax only if the seller did not already collect sales tax from you at the time of purchase.
  • Most major online retailers now collect sales tax, so use tax most often applies to small sellers or in-person purchases while traveling.
  • Your state may ask you to report and pay use tax on your income tax return, though enforcement is rare for individuals.

When you actually owe use tax

You owe use tax only when two things are both true: the seller did not collect sales tax, and you are bringing the item into your state to use it. If a seller collected sales tax at checkout, you do not owe use tax — the tax was already paid. If you buy something out of state but have it shipped directly to another state (not yours), you do not owe your state's use tax on it.

Common situations where use tax applies include buying from a small online seller in another state who does not collect tax, purchasing items in person while traveling and bringing them home, or ordering from a foreign seller. If you buy from a major retailer like Amazon or Walmart, they almost certainly collected your state's sales tax already, so no use tax is owed.

Some states ask residents to report use tax on their annual income tax return. A few states have a line on the return where you can enter an estimate of use tax owed. Most states do not actively audit individuals for use tax, but the obligation technically exists in most states.

How use tax rates work

Use tax is charged at your state's sales tax rate for that type of item. If your state charges 7 percent sales tax on clothing, you would owe 7 percent use tax on clothing you buy out of state. If your state does not tax groceries but taxes other goods at 6 percent, the same rule applies to use tax.

The rate depends on where you live and what you bought, not where you bought it. If you live in a county with a local sales tax add-on, your use tax includes that add-on too. A resident of a county with 8.5 percent total sales tax owes 8.5 percent use tax on out-of-state purchases, even if they bought the item in a state with no sales tax.

The difference between use tax and sales tax

Sales tax is collected by the seller at the point of sale. Use tax is collected by the state from the buyer after the purchase, usually through the tax return. Sales tax happens automatically at checkout; use tax requires the buyer to report and pay it themselves, or for the state to ask for it on a tax form.

Both taxes are meant to tax the same transaction — they are alternatives, not additions. You pay one or the other, never both. If you bought something in state and paid sales tax, you do not owe use tax. If you bought it out of state and the seller did not collect tax, you owe use tax to make up the difference.

In practice, sales tax is collected far more often because most sellers now have the systems in place to do it. Use tax is the backup mechanism for situations where sales tax was not collected.

Who actually collects use tax

In theory, you are responsible for reporting and paying use tax yourself. In practice, most states do not pursue individuals for it. Some states ask you to report use tax on your income tax return, usually with a line or worksheet where you estimate the amount. A few states have tried to collect it more actively, but enforcement against individual residents remains uncommon.

Businesses are a different story. States do pursue businesses for use tax more aggressively, especially larger ones. If you run a business and buy equipment or inventory out of state without paying sales tax, your state is more likely to audit you for use tax.

The practical reality is that use tax exists on the books in most states, but individual residents are rarely required to pay it unless they volunteer the information on their tax return or the state specifically asks.

How to report use tax if your state requires it

Check your state's income tax return form. Some states include a line or worksheet for use tax. If yours does, you can estimate the total amount of use tax you owe based on out-of-state purchases you made that year, then enter that amount on the form. You do not need to list every purchase — most states ask for an estimate or total.

If your state does not have a line for use tax on the income tax return, you typically do not need to report it unless the state sends you a specific notice asking you to do so. A few states have separate use tax return forms, but these are uncommon for individual residents.

Keep receipts from out-of-state purchases if you want to be thorough, but most people estimate based on what they remember spending. The amount is usually small enough that it does not significantly change your tax bill.

Frequently Asked Questions

Do I owe use tax on everything I buy out of state?

No. You owe use tax only on items the seller did not collect sales tax on. If you buy from a major retailer that collected your state's sales tax at checkout, no use tax is owed. You also do not owe use tax on items that are not taxable in your state, such as groceries in states that do not tax food.

What if I buy something while on vacation and bring it home?

You technically owe use tax on it at your home state's rate, even though you bought it in another state. However, most states do not pursue individuals for use tax on personal purchases made while traveling. If the item was subject to sales tax in the state where you bought it, that tax was likely already collected.

Do I owe use tax on online purchases from Amazon or Walmart?

Almost certainly not. Amazon, Walmart, Target, and most major retailers now collect sales tax for your state at checkout. Once sales tax is collected, no use tax is owed. Use tax applies mainly to small sellers who do not have sales tax collection systems in place.

Can I deduct use tax on my federal income tax return?

No. The federal government does not allow a deduction for use tax paid. Some states allow a deduction on the state return if you paid use tax, but this varies by state. Check your state's tax instructions to see if use tax is deductible.

What happens if I do not report use tax?

Most states do not enforce use tax against individual residents. If your state has a line for it on the income tax return and you leave it blank, nothing typically happens. Enforcement is rare unless the state specifically audits you or you have very large out-of-state purchases that trigger attention.