Use tax on business purchases: why it shows up in audits
Last updated · Reviewed for accuracy against IRS.gov guidance
Use tax is owed when a business buys taxable goods without paying sales tax and uses them in a state with a sales tax. Because sellers outside the state often don't charge tax, businesses build up unpaid use tax on equipment, supplies and software without realizing it — and auditors look for it.
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How use tax works
Every state with a sales tax pairs it with a use tax at the same rate, so buying out of state doesn't avoid the tax. If the seller didn't charge your state's tax, the buyer is responsible for reporting and paying it, usually on the regular sales and use tax return or, for businesses not registered to collect, a separate consumer use tax return. Estimate the amount with the use tax calculator.
Purchases that usually create use tax
- equipment and furniture bought online or from out-of-state vendors,
- office supplies and cleaning supplies from sellers that didn't charge tax,
- inventory bought for resale and then used in the business (samples, displays, shop supplies),
- certain software and digital products, depending on the state.
Credit for tax paid to another state
When you paid sales tax to another state on an item later used in your state, most states give a credit for the tax paid, up to their own rate. Keep the invoice showing the tax to claim it. Without documentation, an auditor may assess the full use tax.
Why auditors focus on it
Use tax findings are easy to document: auditors pull fixed-asset ledgers and expense accounts and check invoices for tax charged. Because the business both bought and used the item, there's rarely a defense other than proving tax was paid or the item was exempt. A business with clean sales reporting can still owe significant use tax after an audit — see sales tax audits.
Fixing past years
If you find unpaid use tax before an audit, amending returns or using a voluntary disclosure agreement can limit lookback and penalties in many states. Going forward, add a use tax accrual step to your accounts payable process. Check your agency's rules on your state sales tax page, or take the free business tax relief assessment.
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Start the calculatorFrequently asked questions
Is use tax the same rate as sales tax?
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Generally yes — the state rate plus any local rate where the item is used.
Do I owe use tax on items for resale?
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No, as long as they're actually resold. Items pulled from inventory for business use can become subject to use tax.
How do I pay use tax if I'm not registered for sales tax?
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Many states have a consumer use tax return or a line on the income tax return. Check your agency.
Does use tax apply to services?
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Only where the state taxes the service. Many states don't tax most services.
What penalties apply to unpaid use tax?
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The same late-payment penalties and interest as sales tax in most states.
Related topics
Sources
IRS figures on this page (rates, fees, thresholds) verified as of 2026-11-04. See our editorial policy.
TaxSettlementCalculator.com is not a tax firm, law firm, CPA, or government agency and is not affiliated with the IRS or any state tax agency. Estimates are for educational purposes only and are not tax, legal, or financial advice. Results vary based on individual circumstances, and no outcome is guaranteed. We connect users with independent tax relief professionals.