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A sales tax is defined as "A sales tax is a consumption tax imposed by the government on the sale of goods and services""

A use tax is defined as "A sales tax on purchases made outside one's state of residence on taxable items that will be used, stored or consumed in one's state of residence and on which no tax was collected in the state of purchase."

I understand that the terms are mutually exclusive, but I want to make sure my understanding is correct.

Scenario 1: I buy milk in Colorado. [Sales tax]
Scenario 2: I buy milk in Utah, but live in Colorado. [Sales tax to Utah]
Scenario 3: I buy milk in Utah, and have it shipped to my home in Colorado. [Use tax]

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Milk is probably a bad example as most states exempt groceries from sales tax. Also, various states may or may not allow a credit for sales tax paid in the foreign jurisdiction. In scenarios two and three you may owe sales tax to Utah and Use tax to Colorado.

The investopedia definition is a little misleading on which no tax was collected in the state of purchase. means in Scenario two no sales tax was collected in Utah to be remitted to Colorado.

Using California as an example:

You must pay California use tax when you purchase out-of-state items by telephone, Internet, mail, or in person and both of the following apply:

  • The seller does not collect California sales or use tax.
  • You use, give away, store, or consume the item in this state.

But the CA law does allow you to net off sales tax paid to another jurisdiction.

  1. Subtract any sales or use tax you paid to another state for the items you purchased.

The idea of a use tax is to encourage spending within the state because you'll technically owe the same amount in sales tax either way.

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    As a practical matter, about the only thing this really applies to is automobiles. – jamesqf Apr 30 '18 at 18:17
  • We renovated our office space and received a letter from the state looking for use tax on the furniture. I agree that the practicality of use tax collection is wildly different than the letter of the statute(s). – quid Apr 30 '18 at 18:21

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