Sales Tax is a state and local tax on the sale of goods to the final purchaser, whether business or individual. If your business sells to the ultimate consumer, you will generally have to register as a sales tax vendor, and collect and remit sales tax on taxable sales. However, many business-to-business sales will be exempt from sales tax, because the goods will be resold at a later date. Services are typically not subjected to sales tax except where the state regulations specifically mention them. Each state has its own regulations, so it’s important not to apply the law from one state to another.

Use Tax is a tax on consumption and is the compliment of Sales Tax - it is intended to catch businesses and individuals who purchase taxable goods services and do not pay sales tax. This often is the case when the vendor is out-of-state and is not required to charge your state’s sales tax due to a lack of nexus. If you buy something and do not pay sales tax, it is your responsibility to pay the Use Tax, which is generally assessed at the same rate as the Sales Tax. With internet, TV and catalogue sales representing an increasing percentage of purchases, enforcement of the Use Tax provisions has mounted.

Businesses only need to charge sales tax in states where they have a physical presence or “nexus.” For example, if you sell computers out of your Manhattan retail store, you would collect sales tax on those sales and remit that money to New York State. Conversely, if your New York based catalogue sales business sells to customers in New Jersey, you will not need to charge or collect sales tax on those out-of-state sales because you lack nexus.

The U.S. Sales & Use Tax system differs from the Valued Added Tax (VAT) or Goods & Services Tax (GST). The VAT is a tax paid on products and services at each stage of production or distribution, based on the value added at that stage, and is included in the cost to the ultimate customer. The U.S. Sales & Use Tax only applies to the ultimate customer. So, if you sell your products to qualified resellers, who will in turn sell them to others in either improved or unimproved condition, you will not need to charge Sales & Use Tax.