Sales tax is a tax collected by retailers when you purchase goods or certain services within a state. In New York, for example, the statewide sales tax rate is 4%, and local counties or cities may add additional taxes, resulting in combined rates of up to 8.875% in areas like New York City.
Retailers are responsible for collecting the sales tax at the point of sale and remitting it to the state. Most tangible personal property—like electronics, furniture, and some clothing—and certain services are subject to sales tax. Certain items, such as most groceries, prescription drugs, and clothing under $110, are typically exempt.
Example: Buying a laptop from a New York store means the retailer adds sales tax to your purchase.
Understanding Use Tax
Use tax is a complementary tax to the sales tax and applies when you buy taxable goods outside your state but bring them in for use, storage, or consumption within your state. The purpose of the use tax is to level the playing field between in-state and out-of-state purchases, ensuring that individuals and businesses do not avoid paying tax simply by buying from another state.
Example: If you purchase a printer online from a retailer in New Jersey and New York sales tax is not charged, you must report and pay use tax to New York. Similarly, businesses that buy equipment or inventory from out-of-state suppliers must self-assess use tax if no sales tax was collected.
Key Differences Between Sales Tax and Use Tax
| Feature | Sales Tax | Use Tax |
| Who collects | Retailer | Consumer or business |
| When it applies | In-state purchases | Out-of-state purchases used in-state |
| Payment method | Collected at point of sale | Self-reported if not collected |
Why It Matters
Understanding the difference between sales and use tax is crucial for tax compliance. Businesses must ensure proper collection and reporting, while consumers should be aware of self-assessment requirements for out-of-state purchases. Failing to pay sales or use tax can result in penalties, interest, and audits.
Staying informed helps individuals and businesses avoid unexpected costs, remain compliant with state regulations, and plan purchases wisely.
If you’re not sure when a purchase triggers sales tax versus use tax — especially on online or out-of-state buys — Dimov NYC CPA can review your situation and help you stay fully compliant without overpaying.
