What it is

Use tax is the complement to sales tax. Where sales tax is collected by the seller at checkout, use tax is owed on the use, storage, or consumption of taxable goods in a state when no sales tax was paid. Consumer use tax is the version of that tax the buyer self-assesses — it doesn’t appear on an invoice, because no seller collected it.

The classic trigger is a purchase from an out-of-state vendor that has no nexus in the buyer’s state and therefore had no obligation to charge tax. The transaction is still taxable; the responsibility for paying the tax simply shifts from the seller to the buyer. The buyer is expected to calculate the tax at their own state’s rate, report it, and remit it directly to the state. <!– src: https://www.avalara.com/blog/en/north-america/2023/05/use-tax-sales-tax-everything-you-need-to-know.html –> <!– src: https://sovos.com/blog/sut/demystifying-tax-types-sales-tax-vs-sellers-use-tax-vs-consumers-use-tax/ –>

The purpose is fairness: without use tax, buyers could dodge sales tax simply by purchasing from out-of-state sellers, putting in-state retailers at a permanent price disadvantage. Use tax is set at the same rate as the sales tax it backstops, so the total tax is the same no matter where the buyer shops.

Why it matters to a multi-state seller

It is easy to think of use tax as a consumer problem, but it bites businesses hardest. Companies routinely buy taxable items — equipment, software, supplies, fixtures — from vendors who don’t charge tax, either because the vendor has no nexus or because the buyer handed over a resale certificate and then used the goods internally instead of reselling them. In both cases the business owes consumer use tax and must accrue it.

Auditors love this area precisely because it is so often missed. A sales tax audit almost always includes a use tax review of your purchase records: the auditor looks for invoices where no tax was charged and tests whether you self-assessed. Unreported consumer use tax on years of equipment and software purchases can add up to a large assessment, plus penalties and interest — even for a business that collected its own sales tax flawlessly.

Worked example

Your company is in a state with a 7% combined rate.

• You buy $30,000 of warehouse racking from an out-of-state supplier that has no nexus in your state and charges no tax. The racking is taxable and you keep it for your own use. You owe consumer use tax: $30,000 × 7% = $2,100, which you self-assess and remit on your use tax return.
• You buy $5,000 of inventory tax-free using a resale certificate, intending to resell it. Later you pull $1,000 of it for an in-house demo unit. The $1,000 you consumed is no longer “for resale,” so you owe consumer use tax on it: $1,000 × 7% = $70.
• A staff member expenses $800 of software bought online with no tax charged. If it’s taxable in your state, that’s another $56 of use tax to accrue.

None of these show tax on the invoice — which is exactly why they get overlooked.

How this connects to staying compliant

Consumer use tax is the mirror image of seller’s use tax. Seller’s use tax is what you collect as a remote seller; consumer use tax is what you owe as a buyer when no one collected from you. A clean compliance program tracks both: tax collected on outbound sales, and tax accrued on inbound purchases that arrived tax-free.

The defense is a purchase-side process — reviewing AP invoices for untaxed taxable items, accruing use tax on them, and reporting it on the same returns where you remit collected tax. Do that consistently and the consumer use tax line stops being the soft spot an auditor reaches for first.

Sources: Avalara — Use tax vs. sales tax: What’s the difference?: https://www.avalara.com/blog/en/north-america/2023/05/use-tax-sales-tax-everything-you-need-to-know.html Sovos — Sales Tax vs. Seller’s Use Tax vs. Consumer’s Use Tax: https://sovos.com/blog/sut/demystifying-tax-types-sales-tax-vs-sellers-use-tax-vs-consumers-use-tax/ Sales Tax Institute — Sales Tax vs. Use Tax Guide: https://www.salestaxinstitute.com/sales_tax_faqs/sales-tax-vs-use-tax-guide