Sales and use tax basics
Read about what sales tax, seller's use tax, and customer use tax are.
Both sales tax and seller's use tax are generally added to the item's sale price and paid by the customer, shown as a separate line on a receipt or invoice. Sales tax and seller's use tax can be levied not just at the state level but also at the county, city, or district levels, and it's the seller's responsibility to remit these taxes to the appropriate taxing jurisdiction.
- Sales tax
- Imposed on the sale of taxable items or services by the state on transactions that take place within the state's borders.
- Seller's use tax
- Very similar to sales tax but it is applied on transactions when the buyer and seller are in different states. The sellers use tax is usually the same as the sale tax but sometimes it can be lower.
Sovos is noticing a trend, first demonstrated in Arizona and later in Colorado, of states absorbing sellers use tax within the concept of sales tax. As a result, sales originating from out of state are taxed identically to in-state sales. It is expected that additional jurisdictions will join.
A state is not allowed to impose sales tax on sales that take place outside its borders. However, if the purchased items end up being used within the state, they can generate revenue by charging a consumer use tax. Consumer use tax is a complementary or compensating tax to sales tax.
At the state level, sales tax, seller's use tax, and consumer use tax rates are all the same. However, this is not necessarily true for counties, cities, and districts. At these levels, it is possible to have a use tax rate that is lower than the sales tax rate or to have no complementary use tax rate at all. Another difference between the three kinds of taxes is that sales tax and seller's use tax are collected and remitted by the seller, while consumer use tax is generally reported and paid by the purchaser.
In some cases, buyers do not have to pay sales tax on goods or services that would otherwise be taxable.