Sales tax and use tax: the tax you owe on that online purchase

Sales tax is the most visible tax in American life — you see it added at every register. Its lesser-known twin, use tax, is designed to close the loophole sales tax leaves open: purchases where no sales tax was collected. Together they're how most states fund a big share of their budgets, and while a landmark 2018 Supreme Court case made online sales tax nearly universal, use tax still quietly applies to a surprising number of everyday purchases.

Sales tax: collected by the seller

Sales tax is a percentage added to retail purchases, collected by the seller and remitted to the state and often the city or county. Rates vary widely — from zero in a handful of states to combined state-and-local rates near 10% in others — and what's taxed varies too. Many states exempt groceries and prescription drugs; some tax services, most don't. It's a regressive tax by design, taking a larger share of income from people who spend most of what they earn.

Use tax: the part you're supposed to self-report

Use tax is the mirror image: when you buy something taxable but no sales tax was collected — historically, an out-of-state or online purchase, or something bought in a no-tax state and brought home — you technically owe use tax to your own state at the same rate. It exists so people can't dodge sales tax by shopping across state lines. Most state income tax returns include a line to report and pay use tax, and compliance has always been famously low.

What the 2018 Wayfair decision changed

For decades, a retailer only had to collect sales tax in states where it had a physical presence, which is why early online shopping felt tax-free. The 2018 South Dakota v. Wayfair Supreme Court decision changed that: states can now require out-of-state sellers to collect sales tax once they exceed an economic threshold of sales into the state. The practical result — most online purchases from any sizable retailer now include sales tax at checkout, shrinking (but not eliminating) the use-tax gap for consumers.

The bottom line

Sales tax is collected by sellers on retail purchases; use tax is the self-reported version you technically owe when no sales tax was charged, like some out-of-state or imported purchases. The 2018 Wayfair decision made online sales tax nearly universal, so most consumer use-tax situations have shrunk — but they still exist, and your state return likely has a use-tax line. For individuals it's a minor honor-system item; for businesses, untaxed out-of-state purchases are a real audit risk worth tracking.