What it is

Sales tax and use tax are complementary taxes that together make sure taxable purchases get taxed once — no matter how the buy happens.

Sales tax is “a tax on the sale, transfer, or exchange of a taxable item or service,” and it “generally applies on the sale to the end user or ultimate consumer.” <!– src: https://www.salestaxinstitute.com/sales_tax_faqs/sales-tax-vs-use-tax-guide –> The seller collects it from the buyer at the point of sale and remits it to the state. It typically applies to intrastate sales, where seller and customer are in the same state. <!– src: https://www.salestaxinstitute.com/sales_tax_faqs/sales-tax-vs-use-tax-guide –>

Use tax is “a tax on the storage, use, or consumption of a taxable item or service on which no sales tax has been paid.” <!– src: https://www.salestaxinstitute.com/sales_tax_faqs/sales-tax-vs-use-tax-guide –> It’s the backstop: when a transaction slips past sales tax — most often an out-of-state or online purchase where the seller didn’t collect — use tax fills the gap. Crucially, the two are mutually exclusive: if sales tax was correctly charged, no use tax is due.

Use tax itself splits into consumer use tax (self-assessed and remitted by the buyer) and seller use tax (collected by an out-of-state vendor registered in the buyer’s state). For a deeper look at those two forms, see Use Tax.

Why it matters to a multi-state seller

Knowing which tax applies determines who is responsible when something goes wrong. If you sell into a state where you have nexus, the obligation to collect sits with you — fail to, and the state can come back to you for the tax. If you buy taxable goods from an out-of-state vendor who doesn’t charge tax, the obligation to self-report use tax sits with you as the buyer.

For multi-state e-commerce and wholesale sellers, the same return usually covers both: tax you collected from customers (sales or seller use tax) and tax you owe on your own untaxed purchases (consumer use tax). Mixing these up — or ignoring the use-tax side entirely — is one of the most common findings in a state audit.

Worked example

Your company is registered in Texas and has nexus in Texas only.

• Sale in Texas: You sell $5,000 of taxable goods to a Texas customer. Texas combined rate 8.25% → you collect $412.50 sales tax and remit it.
• Purchase from out of state: You buy $10,000 of office equipment from a vendor with no Texas nexus, who charges no tax. You consume it in Texas → you self-assess $825 consumer use tax on your return.

Same 8.25% rate, two different mechanisms: one collected from your customer, one owed by your business — both reported on the same Texas sales and use tax return.

Comparison: sales tax vs use tax

How this connects to staying compliant

Because the two taxes share a return and a rate, compliance is really one workflow: account for every taxable dollar exactly once. On the sell side, collect and remit sales (or seller use) tax wherever you have nexus. On the buy side, review untaxed purchases and self-assess consumer use tax on items you consume in-state. States audit the use-tax side hardest, precisely because so many businesses report sales tax diligently but forget they also owe tax on their own untaxed buys.

Sources: Sales Tax Institute — Sales Tax vs. Use Tax Guide: https://www.salestaxinstitute.com/sales_tax_faqs/sales-tax-vs-use-tax-guide Avalara — Use tax vs sales tax: https://www.avalara.com/blog/en/north-america/2023/05/use-tax-sales-tax-everything-you-need-to-know.html TaxJar — Use tax vs. sales tax: https://www.taxjar.com/blog/use-tax-vs-sales-tax