What is Use Tax?

Use tax complements sales tax. When a business buys taxable items for its own use, from an out-of-state seller that did not charge the state's sales tax, the buyer generally owes use tax to its state at the same rate the sales tax would have been. Each state administers its own use tax; links are in our state guides.

Common situations

• Buying equipment, furniture or supplies online from a seller that does not collect your state's tax
• Taking items from resale inventory for business use, such as a store using merchandise for display
• Buying in a state with a lower rate and bringing items into your state
• Purchasing certain taxable services from out-of-state providers

How it is paid

Businesses registered for sales tax usually report use tax on their regular sales and use tax return. Businesses without a sales tax account may file a separate consumer use tax return or report it as the state directs.

Why it is often missed

Sellers increasingly collect tax on remote sales, but not always. Use tax is self-assessed, and states commonly find unpaid use tax in audits, particularly on large equipment purchases.

Recordkeeping

Keep invoices that show whether tax was charged. For purchases without tax, record the use tax due.

In the books

Accrue use tax monthly to a use tax payable account and add it to the cost of the item or to the related expense. For capitalized assets, use tax becomes part of the asset's cost. See sales tax bookkeeping, sales tax nexus basics and resale certificate.

Federal guidance does not govern state use tax, but the IRS's state government websites page links to each state's tax agency.

Related terms

• Assets: Assets are resources a business owns or controls that are expected to provide future economic benefit.
• Resale Certificate: A resale certificate lets a business buy goods it will resell without paying sales tax to the supplier.

Browse more definitions in the small business glossary.