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Use Tax Explained and Why It Is Commonly Missed

Use tax is one of the most overlooked sources of compliance risk for businesses of all sizes. It applies when sales tax was not collected on a taxable purchase and the buyer becomes responsible for remitting tax. If you are starting from scratch on obligations, begin with sales tax nexus explained since nexus often determines when both sales tax and use tax obligations apply. If you want to see how TaxMap identifies exposure from real data, see TaxMap Product.

Sales tax and use tax create the same compliance obligation

Sales tax is typically collected from customers on taxable sales and remitted to a jurisdiction.

Use tax is typically remitted by the buyer on taxable purchases when sales tax was not collected.

Many businesses focus on sales tax and assume use tax does not apply. In reality, use tax often accumulates quietly and surfaces during audits or due diligence. If you are worried about historical exposure, see exposure cleanup guides.

Where use tax exposure commonly comes from

Use tax exposure often appears when:

  • A vendor did not charge sales tax
  • Purchases were made across state lines
  • The taxability of items was not evaluated
  • Accounting processes did not track untaxed purchases
  • Use tax exposure often grows as businesses scale across states, vendors, and purchasing channels.

Common purchase categories that can create exposure include:

  • Equipment and supplies
  • Software and subscriptions
  • Furniture and fixtures
  • Out-of-state vendors
  • Certain digital services, depending on jurisdiction

Retailers and B2B businesses often have use tax exposure on out-of-state purchases. Learn more on our Sales Tax Exposure for Retailers in Texas page. Manufacturers in Texas may face use tax if they purchase equipment or materials from out of state. For more information, visit our Sales Tax Exposure for Manufacturers in Texas page.

Why use tax is missed

TaxMap uses AI where it adds real value to extract and standardize invoice and purchase data, then identify use tax exposure alongside sales tax exposure using consistent rules. See how TaxMap works. Nonprofits and educational institutions should be aware of use tax exposure as well. Check out our Sales Tax Exposure for Nonprofits in Texas page.

What to do after identifying use tax exposure

After identifying potential use tax exposure, businesses typically choose one of the following compliance paths:

See filing options for a clear breakdown.

Related resources

If you are still learning the basics of obligations, see sales tax nexus explained. If economic thresholds are driving your obligations, see economic nexus by state to understand how sales and use tax triggers are created.

Frequently asked questions

No. Use tax affects businesses of all sizes. It is often missed because it is not collected at the point of purchase and is not automatically tracked.

TaxMap supports sales and use tax compliance. Most mid market and enterprise businesses file through TaxMap. Smaller businesses may file internally, work with a CPA, or use another provider. Filing is never forced. See filing options.

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