Sales tax is a small fee added to most purchases, collected by the seller and sent to the government to fund public services. Rates vary by state, and some cities add extra on top. Use tax applies when you buy from out of state or online and don’t pay sales tax, then it’s your responsibility to report and pay it to your state. While both taxes serve the same purpose, they apply in different situations. Knowing the difference helps buyers stay compliant and supports essential community services.
What are the Differences Between Sales Tax and Use Tax in America?
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Author: Ivana Picajkić
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Fiscal subject related
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353
Content accuracy validation date:
31.03.2025
Content accuracy validation time:
08:55h
What is Sales Tax?
Sales tax is a small extra charge added when you buy most goods or services. The store collects it when you pay and sends it to the government. It helps fund things like schools, roads, and emergency services.
Each state sets its own sales tax rate, and cities or counties can add more on top. Some items, like groceries or medicine, may not be taxed in certain states.
Some states use different names for their sales tax. For example:
- Arizona calls it a “transaction privilege tax”,
- Hawaii uses a “general excise tax.”
Main points about Sales Tax:
- Who collects it? - The seller
- When is it charged? - At the time of purchase
- Where does it go? - To your state or local government
What is Use Tax?
Use tax is for when you buy something from out of state or online and no sales tax was charged. If that happens, you are responsible for paying the tax directly to your state.
This prevents people from avoiding tax by shopping in other states and helps keep local businesses competitive.
How to pay use tax?
- Go to your state’s tax website,
- Report the purchase using their form,
- Use your local tax rate to calculate what you owe,
- Save receipts in case you’re ever asked for proof.
Main points about Use Tax:
- Who pays it? - The buyer
- When is it paid? - After the purchase
- Where does it go? - Directly to your state
Both sales and use taxes help fund essential public services. Businesses need to collect the right amount and stay updated with changing tax rules. Buyers should also know when they owe use tax to avoid any surprises.
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