Sales Tax vs. Use Tax: What's the Difference?

Sales Tax: Paid at the Point of Sale

Sales tax is charged by the seller at the time of the transaction. When you buy something at a store or from an online retailer, they add sales tax to your purchase. The seller collects it, holds it, and remits it to the state.

Sales tax is destination-based in most states — meaning the rate applied is based on where the buyer receives the goods.

Use Tax: The Backstop

Use tax is the mirror image of sales tax. It applies to purchases where the seller didn't collect sales tax — for example, when a buyer purchases from an out-of-state seller who isn't registered in the buyer's state.

The obligation is on the buyer, not the seller. If you live in California and buy from an unregistered out-of-state seller who doesn't collect California sales tax, you technically owe California use tax on that purchase.

In practice, individual consumers almost never pay use tax voluntarily. But businesses are expected to track and remit use tax on purchases where no sales tax was collected — and business auditors check for this.

They're the Same Rate

Sales tax and use tax are always the same rate within a state. California's 7.25% base rate is both the sales tax rate AND the use tax rate. They're complementary taxes designed to work together so that every taxable transaction results in tax being paid, whether via the seller (sales tax) or the buyer (use tax).

What This Means for Online Sellers

For your sales to customers: You're the seller, so sales tax is your responsibility when you have nexus. You collect it, you remit it.

For your own purchases of inventory/supplies: If your suppliers don't charge you sales tax (for example, because they're in a state you don't have nexus in, or because they're an out-of-state seller), you may owe use tax on those purchases in your home state.

Business use tax is real: If your business buys equipment, supplies, or software from out-of-state vendors who don't charge your state's sales tax, your business technically owes use tax to your state. Many businesses overlook this, and it can come up in audits.

Seller Registration = Both Obligations

When you register for "sales tax" in a state, you're typically registering for both sales and use tax. A California seller's permit covers both. A Texas sales tax permit covers both. The registration is usually called "sales and use tax."

Illinois and the ROT/Use Tax Distinction

Illinois has a notable two-tax structure: Retailers' Occupation Tax (ROT, imposed on sellers) and Use Tax (imposed on buyers). Remote sellers previously paid Use Tax; as of January 1, 2025, remote sellers pay destination-based ROT. Functionally similar from a seller's perspective but a structural distinction worth knowing.

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