Sales tax and use tax work together to ensure taxable purchases are taxed. Sellers generally collect sales tax at checkout and remit it to the state. If they don’t collect it, the buyer may owe use tax instead. This prevents businesses from buying equipment, software, or supplies from an out-of-state vendor and never paying tax on it. 

State governments collected more than $475 billion in general sales and gross receipts taxes in 2025 alone. 

Below, we’ll cover how combined rates stack across jurisdictions, how resale certificates work and where they fail under audit, and what sets manual sales tax processes apart from tax automation systems built to scale across states.

Key takeaways

• At the point of sale, sales tax is collected by the seller, whereas use tax is self-assessed by the buyer when a taxable purchase slips through without tax collected.

• Combined sales tax rates in the US layer state, county, city, and district rates on top of each other, which means the total can change several times a year in a given jurisdiction.

• Resale certificates document exempt business-to-business (B2B) sales, and sellers carry the audit risk when a certificate is missing, incomplete, or doesn’t match what was purchased.

What is sales tax and use tax?

Sales tax is collected by a seller from a buyer at checkout and sent to the state. Use tax is calculated by a buyer when they purchase something taxable that the seller never charged sales tax on. This often happens because the seller has no obligation to collect in the buyer’s state.

How do sales tax and use tax rates work across US states?

The use tax rate is generally equivalent to the sales tax rate. A single transaction can combine state, county, city, and special district rates. Each of the more than 12,000 taxing jurisdictions nationwide can set and change its own rate with little warning.

Here’s how it works:

• State rates alone: These range from 0% in the five states without a statewide sales tax to a base of 7% in states such as Indiana, Mississippi, and Tennessee.

• Louisiana: Parishes administer their own local sales tax on top of the state rate, which pushes the average combined rate to among the highest in the country.

• Colorado: Dozens of home-rule cities, including Denver and Boulder, administer and audit sales tax independently of the state, which means separate registration and filing for individual cities if you sell into Colorado.

• California: California layers state, county, city, and special district rates, and this combined rate can shift by block in some metro areas.

• Origin-based states: These states charge the rate where the seller is located, which works for in-state sales but rarely applies once a seller ships across state lines.

• Destination-based states: The majority of these states charge a rate based on where the buyer receives the goods, which means the same product can carry a different rate for every shipping address.

• Rate changes: These take effect throughout the year, often on the first of a quarter. Jurisdictions don’t always give sellers much notice before the new rate applies.

State and combined rates vary by state. Here’s the rates and ranges for each state. 

What creates use tax obligations for businesses?

A business has a use tax liability when it buys a taxable good or service for its own use, and the seller didn’t collect sales tax on it. 

Here are a few common scenarios in which use tax is due: 

• Equipment: Purchased from an out-of-state vendor with no nexus in the buyer’s state, such as manufacturing equipment or office furniture bought directly from a manufacturer.

• Software subscriptions: Bought from vendors that don’t collect sales tax in the buyer’s state, which can be the case with smaller software-as-a-service (SaaS) providers that haven’t registered everywhere their customers are located.

• Office supplies and business inputs: Ordered online from sellers below the buyer’s state’s economic nexus threshold, which means the seller has no legal obligation to collect tax there.

• Inventory pulled for internal use: For example, a retailer uses a product off its own shelves instead of selling it, which converts an exempt purchase into a taxable one.

Once a business identifies a use tax liability, it self-assesses the tax at the same combined rate that would have applied if the seller had collected it, then reports that amount on its state tax return. Many states include a use tax line directly on the standard sales and use tax return, so a business already registered for sales tax doesn’t need a separate filing. Businesses that aren’t registered for sales tax anywhere still typically owe use tax and might need to register solely for that purpose, depending on the state’s rules.

How do sales tax exemptions and resale certificates work?

Not every B2B sale carries sales tax. Some exemptions and certificates mean sales tax is not charged in the first place.

Here are the details you should know:

• Resale certificate: A signed statement from the buyer, usually including its sales tax registration number, which identifies the items purchased as inventory for resale rather than for the buyer’s own use.

• Uniform certificate options: Many states accept the Streamlined Sales and Use Tax Exemption Certificate or the Multistate Tax Commission’s Uniform Sales and Use Tax Exemption Certificate, which let a business use one document across dozens of participating states instead of a separate form for each.

The seller keeps the certificate on file instead of charging sales tax at the time of sale, and carries the burden if that certificate doesn’t hold up later. A state auditor who finds an exempt sale without a valid certificate on file will typically assess sales tax against the seller, not the buyer, on the theory that the seller should have collected it without proof of exemption. 

A certificate will fail if it’s expired, missing information, or was issued for a type of purchase that doesn’t match what was bought. Resale certificates should only be used for their intended purpose. Buyer misuse, such as using a resale certificate to buy something for personal or business use rather than resale, can result in the buyer being held liable for the tax plus penalties. Sellers reduce their exposure when they collect a certificate before or at the time of the exempt sale, confirm that it’s complete and signed, and check that the buyer’s registration number is active.

How can businesses manage sales and use tax audit risk?

When it comes to audits, certain practices determine how much exposure a business carries. 

Here’s what to be aware of: 

• Record keeping: States typically expect exemption certificates, sales invoices, and use tax self-assessment records kept for several years. Some extend that window if no return was ever filed.

• Nexus monitoring: Economic nexus thresholds, which are commonly around $100,000 in sales into a state within a calendar year, vary by state and often get crossed without a business noticing, especially when sales run through several channels.

• Retroactive liability: A business that crosses a threshold and doesn’t register within the state’s grace period owes tax back to the date nexus began. This is the first thing an auditor checks.

• Voluntary disclosure agreements: Available in states when a business finds its own liability before the state does. This typically caps the lookback period at three or four years and reduces or waives penalties, although interest on the unpaid tax still applies.

• Certificate problems: Missing or incomplete certificates, or certificates that don’t match the goods actually purchased, can turn an exempt sale into a taxable one under review.

• Rate errors: Since state, county, and city rates don’t all update on the same schedule, it’s easy to apply an old combined rate after a jurisdiction changed it mid-year.

• Product taxability mistakes: The same item can be taxable in one state and exempt in another, such as groceries, clothing, or software delivered electronically.

What should businesses consider when choosing a sales and use tax compliance approach?

The right way to handle sales and use tax across states will depend on how many states a business sells into and how often rates and product rules change.

Each of these factors shapes your compliance framework: 

• Manual tracking: This works at a small scale because a business selling in one or two states can reasonably track rate changes and file returns by hand, but once nexus spreads across a handful of states or more, it becomes challenging.

• Nexus footprint: Figure out how many states the business currently has nexus in, and how close it is to crossing a threshold anywhere else, since that determines how many jurisdictions need active monitoring.

• Product taxability: Determine whether what’s being sold carries rules that shift meaningfully by state, such as digital goods, subscriptions, or food and clothing, since a single product can be taxable in one state and exempt in the next.

• Internal capacity: Be realistic about whether your finance team has the time to track rate changes and file returns everywhere the business is registered.

• Cost of getting it wrong: Weigh the audit risk and staff hours lost to rate or exemption mistakes against what it costs to automate the calculation instead.

• Tax automation software: Built for businesses past the manual-tracking stage, this software calculates the combined state, county, city, and district rate for every US transaction based on the buyer’s address and applies the correct taxability rule for the specific product sold.

Stripe Tax, for example, covers all US states and territories that impose sales tax, adds the collected amount directly to a business’s transaction records, and flags when a business is nearing economic nexus in a state it hasn’t registered in yet.

How Stripe Tax can help

Stripe Tax reduces the complexity of tax compliance so you can focus on growing your business. Start collecting taxes globally by adding a single line of code to your existing integration, clicking a button in the Dashboard, or using our powerful API.

Stripe Tax helps you monitor your obligations and alerts you when you exceed a tax registration threshold based on your Stripe transactions. It can also register to collect tax on your behalf in the US, automate US filings in the Dashboard, and manage global filings through trusted partners. Stripe Tax automatically calculates and collects sales tax, VAT, and GST on:

• Digital goods and services in all US states and over 100 countries
  
• Physical goods in all US states and 42 countries
  

Stripe Tax can help you:

• Understand where to register and collect taxes: See where you need to collect taxes based on your Stripe transactions. After you register, switch on tax collection in a new state or country in seconds. You can start collecting taxes by adding one line of code to your existing Stripe integration, or add tax collection with the click of a button in the Stripe Dashboard.

• Register to pay tax: If you need to register for sales tax in the US, let Stripe manage your tax registrations. You’ll benefit from a simplified process that prefills application details—saving you time and simplifying compliance with local regulations. If you need help registering outside of the US, Stripe partners with Taxually to help you register with local tax authorities.

• Automatically collect tax: Stripe Tax calculates and collects the right amount of tax owed, no matter what or where you sell. It supports hundreds of products and services and is up-to-date on tax rules and rate changes.

• Simplify filing: Stripe Tax automates US filings in the Dashboard, powered by TaxJar. For global filings, Stripe Tax seamlessly integrates with filing partners, so your global filings are accurate and timely. Let our partners manage your filings so you can focus on growing your business. US tax filings can be automated in the Stripe Dashboard, powered by TaxJar.

Learn more about Stripe Tax, or get started today.