Legal Definitions - use tax

Use tax is a tax imposed by a state on goods or services purchased outside that state but used within it, when no sales tax was collected by the seller at the time of purchase.

Its primary purpose is to ensure fairness between in-state and out-of-state purchases and to prevent states from losing revenue. If you buy something from a seller located in another state, and that seller does not collect sales tax for your home state, you, as the buyer, are typically responsible for reporting and paying the equivalent use tax to your state. The use tax rate is generally the same as the sales tax rate in your state, and it often applies to the same types of goods and services that would normally be subject to sales tax.

Here are a few examples:

• Purchasing a Vehicle Out-of-State: Imagine a resident of Washington (which has sales tax) travels to Oregon (which has no sales tax) to buy a new car. If the Washington resident then brings the car back to Washington to register it, they would likely owe Washington's use tax on the vehicle's purchase price, as no sales tax was collected in Oregon.

  This illustrates use tax because the Washington resident purchased a high-value item out-of-state where no sales tax was collected, but they are bringing it into their home state for use, making them responsible for the equivalent tax.

• Business Supplies from an Out-of-State Vendor: A small marketing agency based in New York orders custom-designed promotional pens from a manufacturing company located in Pennsylvania. If the Pennsylvania manufacturer does not have a physical presence (or "nexus") in New York and therefore does not collect New York sales tax on the order, the New York marketing agency would be responsible for calculating and paying New York's use tax on the cost of those pens.

  This example demonstrates use tax in a business context, where a company acquires goods from an out-of-state supplier without paying sales tax, and must then self-report and pay the use tax to their home state.

• Collecting Rare Items from Another State: A collector living in Massachusetts purchases a rare antique book directly from a private seller at an antique fair in New Hampshire (which has no sales tax). The private seller in New Hampshire does not collect sales tax. When the Massachusetts collector brings the book back to their home in Massachusetts, they are technically obligated to report and pay Massachusetts' use tax on the purchase price of the antique book.

  This scenario highlights use tax for an individual's unique purchase made in a state without sales tax, where the buyer is responsible for remitting the tax to their home state upon bringing the item for use there.