Sales tax and use tax are closely related, but they create exposure in very different ways. Most businesses focus on sales tax and overlook use tax entirely, even though use tax exposure often grows faster and remains hidden longer.
Understanding the difference between sales tax and use tax is critical for identifying real exposure, prioritizing compliance, and avoiding surprises later.
This guide explains how each tax works, where businesses commonly go wrong, and how to evaluate exposure correctly.
What sales tax is
Sales tax is a tax imposed on the sale of taxable goods or services. It is typically collected from the customer at the time of sale and remitted by the seller to the appropriate state or local tax authority.
Sales tax obligations are triggered when a business has sales tax nexus in a state. Nexus can be created through physical presence or economic activity.
If you have not reviewed nexus yet, start with Sales Tax Nexus Explained.
What use tax is
Use tax applies when sales tax was not charged at the time of purchase and the buyer is responsible for remitting tax directly to the state.
Use tax most often applies to business purchases such as:
- Software and subscriptions
- Equipment and supplies
- Services purchased from out-of-state vendors
- Online purchases where tax was not collected
Unlike sales tax, use tax is self-assessed. There is no checkout warning and no invoice reminder. This is why use tax exposure is frequently missed.
For a deeper explanation, see Use Tax Explained.
Why businesses miss use tax exposure
Sales tax is visible. Use tax is not.
Most businesses track what they charge customers, but they do not consistently review what vendors charged them. Over time, this creates compounding exposure.
Common reasons use tax is missed include:
- Vendors did not charge tax
- Purchases were coded incorrectly
- Software subscriptions were assumed to be non-taxable
- Accounting systems were never set up to track use tax
Many businesses only discover use tax exposure during audits or cleanup projects.
How sales tax and use tax exposure build differently
Sales tax exposure usually builds when:
- Nexus exists but the business did not register
- Tax was not collected when required
- Returns were not filed after registration
Use tax exposure usually builds when:
- Purchases were taxable but not taxed
- No review process existed
- Exposure accumulated quietly over years
Both forms of exposure can exist at the same time and should always be evaluated together.
Sales tax, use tax, and economic nexus
Economic nexus rules primarily impact sales tax, but they often bring use tax into scope as well.
When a business crosses an economic nexus threshold:
- Sales tax obligations may begin
- Filing obligations may follow
- Use tax exposure often becomes visible during review
To understand how thresholds work, see Economic Nexus by State.
Common misconceptions about sales tax vs use tax
There are several persistent misconceptions that increase risk:
- Use tax only applies to consumers
- Small purchases do not matter
- If sales tax exposure exists, use tax is irrelevant
- Use tax can be ignored until an audit
None of these are true. Use tax exposure is enforceable and frequently assessed during audits.
How businesses should evaluate sales tax and use tax exposure
A practical approach looks like this:
- First, identify where sales tax nexus exists.
- Second, determine whether sales tax should have been collected or filed.
- Third, review business purchases for use tax exposure.
- Fourth, prioritize states based on risk and size of exposure.
Only after exposure is understood should filing or remediation decisions be made.
For guidance on next steps, see How to Identify Sales Tax Exposure.
Filing options after exposure is identified
Once exposure is mapped, businesses have options.
You may choose to:
- File internally
- Work with a CPA or advisor
- Use a third-party filing service
- File directly through TaxMap
TaxMap supports full sales tax and use tax compliance filing, but filing through TaxMap is optional. You remain in control of how and when filing happens.
For a full breakdown, see Filing Options.
How TaxMap handles sales tax and use tax together
TaxMap evaluates both sales activity and purchase data to produce a unified view of exposure.
TaxMap helps you see:
- Where sales tax obligations may exist
- Where use tax exposure is building
- Which states require action
- Which states do not
This prevents over-registration and ensures decisions are based on real data rather than assumptions.
Learn more about How TaxMap Works.
Sales tax and use tax are two sides of the same compliance risk. Focusing on one while ignoring the other leads to incomplete decisions and unnecessary exposure.
Businesses that understand both can prioritize correctly, reduce risk, and move forward with confidence.
If you want to see how sales tax and use tax apply to your business, check your exposure with TaxMap.
Frequently Asked Questions
What is the difference between sales tax and use tax?
Sales tax is collected from customers at the point of sale. Use tax is self-assessed by the buyer when tax was not charged at purchase.
Can a business have use tax exposure even if sales tax is handled correctly?
Yes. Use tax exposure often exists independently of sales tax compliance.
Does economic nexus affect use tax?
Indirectly. Economic nexus often triggers reviews that reveal use tax exposure.
Does TaxMap help with use tax filing?
Yes. TaxMap supports use tax analysis and filing, but filing is optional and always your choice.
