Use tax is a tax imposed by state taxing authorities on the purchase of goods outside the taxpayer’s state of residence when sales tax is not collected on the transaction. Use taxes are generally designed to discourage the purchase of goods that are not subject to sales tax.
In Texas, use tax functions as a counterpart to the state's sales tax and applies to the purchase of tangible personal property or taxable services that are used, stored, or consumed within Texas when sales tax has not been paid at the time of purchase. This typically occurs when Texas residents buy goods from out-of-state sellers, including online and mail-order retailers, who do not collect Texas sales tax. The use tax rate in Texas is the same as the sales tax rate, which is 6.25% at the state level, with local jurisdictions potentially adding up to 2% additional tax, making the total possible combined rate up to 8.25%. Texas residents are responsible for paying use tax directly to the Texas Comptroller of Public Accounts if the seller does not collect it. The intent of the use tax is to protect in-state retailers by removing the incentive for consumers to shop out of state to avoid sales tax, and to ensure that the state does not lose out on tax revenue for goods and services that are consumed within its borders.
