The difference between sales tax and use tax comes down to who remits the tax. Sales tax is collected and remitted by the seller at the point of sale. Use tax is self-assessed and remitted by the buyer when a taxable purchase arrives without tax charged on the invoice.
It sounds too small to matter. But frame it as sales tax vs. use tax or use tax vs sales tax, and that single question of who remits drives most of the errors examiners find in a sales tax audit, and most of the refund money large companies leave with vendors and states.
Jake Deaton, Senior Consultant on Revenew’s Sales Tax Recovery team, covers the distinction in 93 seconds in his video Sales Tax vs. Use Tax. This article is the companion piece.
The difference between sales tax and use tax
Sales tax and use tax are complementary taxes on the same transactions. Sales tax applies when the seller charges tax on the invoice and remits it to the state. Use tax applies when the seller does not, and the buyer must self-assess it instead. Only one of the two is due on any given purchase.
The Washington Department of Revenue states this directly: a purchase is subject to either sales tax or use tax, never both on the same transaction. California’s CDTFA notes that the use tax rate for any location equals the sales tax rate there, and that use tax dates to 1935, created to level the playing field between in-state and out-of-state sellers (CDTFA, California Use Tax).
What differs is operational:
Sales tax
Use tax
Who remits
Seller collects at the point of sale and remits
Buyer self-assesses and remits directly to the state
When it applies
Vendor is registered in the ship-to state and charges tax on the invoice
A taxable purchase arrives untaxed: out-of-state vendors, inventory withdrawn for internal use, assets moved between states
Who gets audited on it
Sellers, on tax collected from customers
Buyers, on untaxed purchases; auditors test the AP file
Common failure mode
Charging tax on exempt sales or at wrong rates
Under-accruing (assessment risk) or accruing on top of vendor-charged tax (double payment)
What is consumer use tax?
Consumer use tax is the tax a business owes directly to a state on taxable goods or services it uses, stores, or consumes there when the vendor did not charge sales tax. The buyer calculates the tax, accrues it, and remits it with its own return, at the rate sales tax would have carried.
In Texas, a purchaser owes state and local use tax on taxable items stored, used, or consumed in the state when the seller did not collect Texas tax; permitted businesses report it on the taxable purchases line of the regular return (Texas Comptroller, Use Tax). Most states work this way.
The “consumer” label distinguishes it from seller’s use tax, which a registered remote vendor collects for you. Consumer use tax is the version where no one collects anything: an out-of-state vendor invoices without tax, inventory is pulled for internal use, equipment is transferred into a plant in a new state. Unlike sales tax, which arrives as an invoice line someone pays, this is a decision your AP process must make invoice by invoice, and every error repeats monthly.
Why the distinction costs money: two traps
The cost runs in two directions at once. Companies pay twice when a vendor charges sales tax and the buyer’s system accrues use tax on the same invoice. Companies build audit exposure when taxable untaxed purchases are never accrued. Both problems come from the same weak validation step.
The double-payment trap
The double-payment trap breaks the one-transaction, one-tax rule. A vendor correctly charges sales tax on the invoice, but the buyer’s ERP or tax engine reads the line as taxable and untaxed, so it accrues use tax on top. The state gets paid twice, and nothing looks wrong: the vendor did its job, the engine did its job, the return went out on time. A variant: the vendor charges tax on an exempt purchase and the buyer pays it. Both patterns rank among the most common causes of sales tax overpayments, and both are refundable, but only until the statute of limitations closes each month behind you.
The under-accrual trap
The opposite error is quieter and more dangerous: taxable purchases arrive untaxed and no one accrues anything. Auditors know consumer use tax is the weakest control at most companies, which is why the untaxed AP purchase population is a standard test block in a state exam and a central topic in preparing a sales tax audit defense. Under-accruals surface as assessments with penalties and interest, often projected from a sample.
The two traps are two sides of one validation problem: fix the step that checks whether tax was charged correctly and whether it should have been accrued, and both exposures shrink together.
How multi-state operations multiply the confusion
States that levy a sales tax pair it with a compensating use tax, but each draws its own lines: what is taxable, which exemptions apply, where use tax is owed when property moves, and how it is reported. A company operating in 20 states answers the same who-remits question 20 different ways.
Washington, for one, sources use tax to where goods are first used, at the 6.5 percent state rate plus a local rate, so equipment redeployed across a state line opens a second use tax question. Credits for tax paid elsewhere exist (Texas allows credit for sales tax legally paid to another state) but must be documented and claimed.
Scale turns these edge cases into a steady accumulation of recoverable refunds. In one Revenew engagement, a leading global food manufacturing company operating in 34 states expected a small recovery; nearly $34 million in available refunds was identified across eight states. An engagement outcome, not a promise, but the mechanism is exactly this: small per-invoice error rates multiplied by thousands of invoices and dozens of jurisdictions.
How to keep sales and use tax straight
The control that keeps sales and use tax straight is a recurring accrual review: a periodic examination of taxed and untaxed purchases asking three questions. Did vendors charge tax correctly? Did we accrue use tax where we should have? Did both happen on the same invoice? Software decides in milliseconds; the review checks its work.
Automation is necessary at enterprise volume, but tax engines decide from imperfect inputs (vendor descriptions, ship-to data, exemption flags) and are tuned to file on time, not to catch overpayment. Understanding what sales tax automation misses tells you what the review layer must cover. If the accrual process itself needs building, start with building a use tax system that protects growth.
Tie the cadence to your statutes of limitation: quarterly for high-volume operations, at minimum annually, so refund claims go in before recovery windows close and under-accruals are corrected before an auditor finds them. An independent reviewer complements the internal team; a second set of eyes with no stake in the original decisions finds what the first set was never positioned to see.
About the author: Jake Deaton, Senior Consultant, Sales Tax Recovery at Revenew International. Jake has spent his career in sales and use tax consulting, with deep experience across manufacturing, insurance, financial services, technology, and retail.
If you are not certain which invoices were taxed twice and which were never taxed at all, an independent review answers the question. Revenew’s sales and use tax recovery services carry zero upfront cost and work alongside your internal team and existing providers. Request a No-Risk Review.