What is sales and use tax?
Learn about sales tax, seller's use tax, and consumer use tax.
Both sales tax and seller's use tax are generally added to the item's sale price and charged to the customer, often appearing in 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 iss 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
- Similar to sales tax but applied to transactions where the buyer and seller are in different states.
- Consumer use tax
- 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, the state can generate revenue by charging a consumer use tax.
Sovos has noticed a trend, first demonstrated in Arizona and later in Colorado, of states absorbing seller's 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.
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.
While sales tax and seller's use tax are collected and remitted by the seller, 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.