Sales tax
Use Tax in 2026: When You Owe It and How to Report It
Use tax explained for 2026: consumer vs seller use tax, when businesses owe it on out-of-state purchases, credits, and how to report it in TX, CA, IL, WA and MN.
Edited by Sumeet YadavFounder & editor, MSMETOOLS · fact-checked against official sources
Contents (9)
Sales tax gets the attention, but every state with a sales tax also has a use tax, and businesses pay more of it than they realise. It applies whenever you buy something taxable for use in your state and the seller doesn't charge your state's tax. This guide is for small business owners, bookkeepers and anyone who buys equipment, supplies or software from out-of-state or online sellers. It explains consumer use tax and seller's use tax, when a business owes it, credits for tax paid elsewhere, and exactly how to report it in Texas, California, Illinois, Washington and Minnesota, with dollar examples. Rules were checked against state revenue departments in October 2026.
Quick answer
Use tax is owed when you buy taxable goods or services for use in a state and no sales tax was charged. It is the same rate as sales tax where you use the item. Businesses with a sales tax permit report it on their sales tax return (Texas: Item 3, "taxable purchases"); others use a separate use tax return or their income tax return.
Typical triggers: out-of-state or foreign suppliers, untaxed online purchases, stock taken from inventory for your own use
Tax paid to another state is usually credited; you pay only any difference
California businesses without a permit that make more than $10,000 of purchases subject to use tax a year must register as qualified purchasers
Illinois individuals must enter use tax on IL-1040 Line 21, even if it is zero
Remote sellers often collect 'seller's use tax' for you, which settles the buyer's liability
What use tax is and why it exists
Sales tax is a tax on retail sales made in a state. A state can only make a seller collect it if the seller has nexus there. For most of the last century, that left a gap: a buyer in Texas ordering from a catalogue company in another state paid no tax at all, which gave remote sellers a price advantage over local shops and cost states revenue.
Use tax closes that gap. It is a tax on the use, storage or consumption of taxable goods and services in the state, at the same rate as the sales tax. Every item used in the state should bear one or the other, never both. The Washington Department of Revenue puts it simply: items used in the state are subject to either sales tax or use tax, but not both on the same transaction.
If the seller charged your state's sales tax, you owe nothing more. If it didn't, the obligation falls on you as the buyer to report and pay use tax. That is consumer use tax. When a business with nexus in your state collects tax from you but has no store there, it is often collecting seller's use tax on your behalf; either way the tax is settled for you.
Since the Supreme Court's South Dakota v. Wayfair decision in 2018 let states require remote sellers to collect, much more tax is collected at the point of sale. But a lot still isn't, and the remaining gaps fall mostly on businesses.
Consumer use tax vs seller's use tax
The two terms describe who is responsible for paying the state, not different taxes.
Texas shows how seller's use tax works. A remote seller that passes the Texas economic nexus threshold of $500,000 collects Texas use tax, not sales tax, on its deliveries into the state: the 6.25% state rate plus local use tax, or the single local use tax rate of 1.75% if it elects it. California's out-of-state retailers registered to collect hold a "Certificate of Registration – Use Tax" for the same purpose. For the customer, a receipt showing that tax means no further use tax is due.
Consumer use tax vs seller's use tax
| Consumer use tax | Seller's use tax | |
|---|---|---|
Who pays the state | The buyer, directly | The seller, after collecting from the buyer |
When it arises | Seller didn't charge your state's tax | Remote seller with nexus collects tax on deliveries into the state |
How it is reported | Buyer's sales tax return, use tax return or income tax return | Seller's sales and use tax return |
Example | Texas studio buys a computer from a small out-of-state reseller that charges no tax | Out-of-state online retailer over the Texas threshold charges Texas state and local use tax |
Rate | Rate where the item is first used | Rate for the delivery address (Texas lets remote sellers use a single local rate of 1.75%) |
Who pays the state
- Consumer use tax
The buyer, directly
- Seller's use tax
The seller, after collecting from the buyer
When it arises
- Consumer use tax
Seller didn't charge your state's tax
- Seller's use tax
Remote seller with nexus collects tax on deliveries into the state
How it is reported
- Consumer use tax
Buyer's sales tax return, use tax return or income tax return
- Seller's use tax
Seller's sales and use tax return
Example
- Consumer use tax
Texas studio buys a computer from a small out-of-state reseller that charges no tax
- Seller's use tax
Out-of-state online retailer over the Texas threshold charges Texas state and local use tax
Rate
- Consumer use tax
Rate where the item is first used
- Seller's use tax
Rate for the delivery address (Texas lets remote sellers use a single local rate of 1.75%)
When a business owes use tax
Most businesses that owe use tax don't realise it until an audit. These are the common situations.
Purchases from out-of-state sellers that don't charge your tax. Small manufacturers, specialist suppliers, used-equipment dealers and many business-to-business vendors sit below the economic nexus thresholds in most states, so they don't collect. Anything taxable you buy from them for your own use carries use tax.
Purchases made in another state and brought home. A Washington business that buys equipment in Oregon, which has no sales tax, and brings it back for use in Washington owes Washington use tax. The Washington Department of Revenue lists this as a standard example.
Imports and foreign suppliers. Goods bought abroad and used in the state are subject to use tax. Customs duty is a federal charge and doesn't replace it.
Stock taken from inventory. Goods bought tax-free on a resale certificate and then used by the business, given away or kept by the owner are subject to use tax on their cost. Texas also allows tax on fair rental value for items used temporarily and then sold.
Misused resale or exemption certificates. If you bought something tax-free on a certificate and it turns out not to qualify, you owe the tax. Washington adds a penalty of 50% of the tax when a reseller permit is used incorrectly, even without intent to defraud.
Taxable services and digital products. In states that tax software, data services or other services, the same rules apply when an out-of-state provider doesn't charge tax.
What you don't owe use tax on: inventory you will resell, items that are exempt in your state, and purchases where the seller charged your state's tax at the correct rate.
The rate, and credit for tax paid to another state
Use tax is charged at the same combined rate as sales tax, based on where you first use the item, not where you bought it. In Texas that means the 6.25% state rate plus up to 2% local use tax for the location of use, up to 8.25% in total. In Washington, the 6.5% state rate plus the local rate where the item is first used, which you find with the state's rate lookup tool. The taxable amount is generally the purchase price including delivery charges paid to the seller.
If you paid sales tax to another state, most states give you a credit. Texas allows a credit for sales or use tax paid to other states. Illinois lets you subtract tax paid to another state and pay only the difference if that rate was lower than Illinois's, but gives no credit for tax paid to another country. Keep the receipt showing the tax, because without it you can't claim the credit in an audit.
How to report use tax: businesses
Report use tax as a business
- 1
Review purchases each period
List invoices from vendors that didn't charge your state's tax, plus anything taken from inventory for your own use.
Tip: Start with fixed assets, software subscriptions, office supplies and anything shipped from out of state.
- 2
Decide what is taxable
Exclude items for resale and exempt items. Include delivery charges paid to the seller.
- 3
Apply the rate where you use the item
Use the state's address lookup for the combined rate. Deduct any tax already paid to another state.
- 4
Report on the right return
Permit holders: the 'taxable purchases' or use tax line on the sales tax return. No permit: the state's use tax return or, where allowed, the income tax return.
- 5
Keep the workpapers
Keep the invoice list and calculation for the audit period.
Texas. If you hold a sales tax permit, report untaxed purchases in Item 3, "Taxable Purchases", on your regular Texas sales and use tax return, due on the next scheduled date. Businesses and individuals without a permit use Form 01-156, the Texas Use Tax Return. If you owe less than $1,000 for the year, it is due January 20 of the following year. Once you owe $1,000 or more, it is due by the 20th of the month after you reach that amount. See our Texas sales tax guide.
California. Businesses with a seller's permit report use tax on their CDTFA sales and use tax return. Businesses without one have two options: report it on the business's California income tax return using the use tax worksheet, or file a one-time use tax return through CDTFA online services. Vehicles, vessels, aircraft, mobile homes, cigarettes and tobacco products can't go on the income tax return. A business without a seller's permit that makes more than $10,000 of purchases subject to use tax a year (from 2024 to 2028, excluding vehicles, vessels and aircraft) is a qualified purchaser: it must register with CDTFA and file an annual use tax return. From January 1, 2029 the test returns to receiving at least $100,000 of gross receipts a year. More in our California sales tax guide.
Illinois. Registered retailers report use tax on Form ST-1, their sales and use tax return. Businesses that aren't registered and buy from out-of-state sellers that didn't charge Illinois tax use Form ST-44, the Illinois Use Tax Return. The state rate is 6.25% on general merchandise. See our Illinois sales tax guide.
Washington. Registered businesses report use tax on their excise tax return, in the period they first use the goods in Washington. A business that isn't required to register files the Consumer Use Tax Return instead. Our Washington sales tax guide covers excise returns.
How to report use tax: individuals
Individuals owe use tax too, though most states enforce it far less. Since large online retailers and marketplaces now collect tax in every sales tax state, it mostly arises on purchases from small out-of-state sellers, foreign websites and private sales.
Illinois makes everyone filing an IL-1040 enter an amount on Line 21 for use tax, writing zero if none is due. You calculate it with the Use Tax Worksheet, at 6.25% on general merchandise and 1% on food, non-prescription drugs and medical appliances, minus tax paid to another state. If you have no receipts and no major purchases, you can use the estimate table based on your income instead. If your use tax is more than $600 ($1,200 married filing jointly), you must file Form ST-44 rather than reporting it on the IL-1040.
California lets individuals report use tax on the state income tax return. For items under $1,000 each, you can use the Franchise Tax Board's estimate table. For larger items, you report the actual amount.
Minnesota exempts individuals who buy up to $770 of taxable items in a calendar year without paying tax. If you go over, all your untaxed purchases for the year are taxable, not just the excess. The exemption doesn't apply to items for business use, or to purchases from sellers required to collect Minnesota tax.
Washington has no income tax, so individuals use the Consumer Use Tax Return, online through My DOR or on paper. Vehicles are different: use tax on a vehicle bought out of state is normally paid to the Department of Licensing when you register it.
| State | Business with a permit | Business without a permit | Individuals |
|---|---|---|---|
| Texas | Item 3 of the sales and use tax return | Form 01-156 (by Jan 20 if under $1,000) | Form 01-156 |
| California | CDTFA sales and use tax return | Income tax return or one-time return; register if it makes more than $10,000 of purchases subject to use tax a year | Income tax return; table for items under $1,000 |
| Illinois | Form ST-1 | Form ST-44 | IL-1040 Line 21; ST-44 if over $600 ($1,200 married filing jointly) |
| Washington | Excise tax return | Consumer Use Tax Return | Consumer Use Tax Return |
| Minnesota | Sales and use tax return | Use tax return | First $770 a year exempt |
Worked examples
Example 1: a Dallas design studio buys a workstation. The studio buys a $3,000 computer from a small out-of-state reseller that charges no tax, and uses it in Dallas, where the combined rate is 8.25%. Use tax is $3,000 × 0.0825 = $247.50. The studio has a Texas permit, so it adds $3,000 to Item 3, "Taxable Purchases", on its next return. If it had no permit, it would file Form 01-156 by January 20 of next year, as its use tax for the year is under $1,000.
Example 2: credit for tax paid in another state. A Chicago consulting firm without an Illinois sales tax registration buys a $2,000 printer while visiting a supplier in another state, paying $100 (5%) of that state's sales tax, and brings it back to its Chicago office. Illinois use tax at 6.25% is $125. The firm subtracts the $100 already paid and owes $25, reported on Form ST-44. If it had paid 7% elsewhere, it would owe Illinois nothing, but it gets no refund of the excess.
Example 3: a Washington business shopping in Oregon. A Vancouver, Washington landscaping company buys an $8,000 mower in Portland, where Oregon charges no sales tax. It first uses the mower in Vancouver. It owes Washington use tax at the 6.5% state rate plus the local rate for Vancouver from the state's rate lookup: at least $8,000 × 0.065 = $520, reported on its next excise tax return.
Try it — use tax on a $3,000 workstation in Dallas
Example 4: a California consultant crosses the qualified purchaser line. A Los Angeles consultant has no seller's permit because it sells only services. In one year it buys $11,500 of furniture, computers and software on physical media from out-of-state sellers that don't collect California tax. That meets the test of more than $10,000 of purchases subject to use tax a year, so it is a qualified purchaser: it must register with CDTFA and file an annual use tax return. At Los Angeles's 10.25%, the use tax is $11,500 × 0.1025 = $1,178.75.
Example 5: a Minnesota individual. A Minneapolis resident buys $650 of taxable items from small out-of-state websites that don't collect Minnesota tax. That is under $770, so no use tax is due. If the total had been $900, all $900 would be taxable: at the 6.875% state rate that is $61.88, plus any local tax.
Audits and common mistakes
Use tax is one of the most frequent findings in sales tax audits, because it's easy to miss and easy for auditors to test. They typically review your fixed-asset additions, expense accounts such as office supplies, software and repairs, and vendor invoices, and look for purchases with no sales tax line. Each untaxed taxable purchase becomes an assessment, with interest. In states that use sampling, a few missed invoices can be projected over the whole audit period.
Not having a process. The fix is a quarterly review of untaxed vendor invoices and a line on each return for use tax accrued. Many accounting systems can flag invoices with no tax from out-of-state vendors.
Assuming online purchases are always taxed. Big marketplaces collect; small vendors and B2B suppliers often don't. Check the invoice, not the website.
Using the vendor's rate. If a seller charged a lower rate than your location's combined rate, you may owe the difference as use tax.
Ignoring inventory withdrawals. Stock used for display, samples, giveaways or the owner's use is subject to use tax on its cost.
Skipping the credit. If you paid another state's tax, claim the credit, and keep the receipt to prove it.
Quarterly use tax review
0/7What to do next
Pull last quarter's vendor invoices and mark every one with no sales tax line. Decide which are taxable, calculate the use tax at your location's rate, and add it to your next return. Then make it a standing step in your quarterly close. If you sell into other states, check whether you now have to collect yourself with our economic nexus guide, and use the sales tax calculator to work out the tax on any purchase.
This is general information, not legal or tax advice — confirm on the official source or with a professional.
Frequently asked questions
Use tax is the partner of sales tax. It applies when you buy taxable goods or services for use in a state and the seller doesn't charge that state's sales tax, typically an out-of-state or online seller. The buyer then owes use tax at the same rate the sales tax would have been, and reports it to the state directly. Items are taxed once: by sales tax or use tax, not both.
Sales tax is charged by the seller at the time of sale and passed to the state. Use tax is owed when no sales tax was charged, and is usually paid by the buyer. The rate is the same, and both are reported on the same return for businesses with a permit. A remote seller collecting tax for a state where it has no store is often collecting 'seller's use tax'.
Only if the seller didn't charge your state's tax. Since Wayfair, large online sellers and marketplaces such as Amazon collect tax in every sales tax state, so most consumer purchases are covered. Purchases from smaller out-of-state sellers, foreign suppliers, auction sites and some business-to-business vendors often aren't, and that's where use tax arises.
Usually yes. If you paid another state's sales tax on an item and then use it in your home state, most states credit what you paid and you owe only the difference if your state's rate is higher. Illinois and Texas both allow this credit. Tax paid to a foreign country generally doesn't count, so keep receipts showing the tax you paid.
Most states let individuals report use tax on their state income tax return. Illinois requires an entry on Line 21 of the IL-1040, with Form ST-44 needed above $600 ($1,200 married filing jointly). California lets individuals use an estimate table for items under $1,000 each. Washington, which has no income tax, has a separate consumer use tax return. Minnesota exempts individuals buying up to $770 a year.
Use tax on business purchases is one of the most common sales tax audit findings. Auditors compare vendor invoices and fixed-asset records with your returns, and assess the unpaid tax with interest and penalties, usually for three or four years. Reviewing untaxed purchases each quarter and accruing use tax on your return avoids the assessment.
Sources & verification
Figures on this page were checked against the sources below when it was last reviewed on 9 October 2026. Each rate and limit is stored once with its own official source and review date, and official update channels are monitored daily so changes are picked up. How we verify
- 1.Use Tax — Texas Comptroller of Public Accounts · accessed 9 October 2026
- 2.California Use Tax for Business Use — California Department of Tax and Fee Administration · accessed 9 October 2026
- 3.Qualified Purchaser Program — FAQs — California Department of Tax and Fee Administration · accessed 9 October 2026
- 4.IL-1040 Instructions, Step 7 — Other Taxes (Line 21 Use Tax) — Illinois Department of Revenue · accessed 9 October 2026
- 5.Use tax — Washington State Department of Revenue · accessed 9 October 2026
- 6.Use Tax for Individuals (Fact Sheet 156) — Minnesota Department of Revenue · accessed 9 October 2026
- 7.Remote Sellers — Texas Comptroller of Public Accounts · accessed 9 October 2026
- 8.South Dakota v. Wayfair, Inc., 585 U.S. 162 (2018) — Legal Information Institute (U.S. Supreme Court opinion) · accessed 9 October 2026
MSMETOOLS is an independent platform and is not affiliated with any government agency, ministry or department.
Tools for this
Sales Tax Calculator (US)
Calculate sales tax for all US states and cities.
Invoice Generator
Create professional invoices with tax, logo and custom details.
Related guides
Resale Certificate (2026): How It Works, by StateRead guide 
Sales Tax Exemption Certificate (2026): Who QualifiesRead guide 
Minnesota Sales Tax 2026: 6.875% Rate, Minneapolis 9.025%Read guide 
Marketplace Facilitator Laws (2026): What Sellers Must DoRead guide Official links open the government site in a new tab.