Use tax is sales tax you owe when a seller doesn’t collect it from you. This happens when you buy something from an out-of-state vendor or make a purchase online where no California sales tax was charged.

The rate is the same as your local sales tax rate. In San Diego County, that’s typically between 7.75% and 8.25% depending on your city. California’s logic is simple. You shouldn’t get a tax discount just because you ordered from a company in Nevada instead of buying locally.

Most businesses end up owing use tax at some point. Maybe you bought equipment online from a specialty vendor who didn’t charge sales tax. Maybe you picked up supplies at an out-of-state trade show. Maybe you ordered materials from a small supplier based somewhere without California nexus. All of those trigger use tax obligations.

The 2018 Wayfair Supreme Court decision changed things somewhat. Large online retailers now collect sales tax automatically in most cases. But smaller vendors, specialty suppliers, and out-of-state sellers without significant California sales often still don’t collect it. When they don’t, the tax obligation shifts to you.

For businesses registered with the California Department of Tax and Fee Administration, use tax gets reported on your regular sales tax returns. You’ll see a line for it on the quarterly or annual forms. If you’re not registered because you don’t sell taxable goods, you may need to register anyway just to report use tax, or report it annually on your income tax return.

The practical challenge is tracking which purchases came without sales tax. When you review vendor invoices and credit card statements, look for out-of-state purchases missing a sales tax line item. Those are potential use tax obligations. A bookkeeping service that categorizes transactions throughout the year should be flagging these for you.

Individual amounts often seem small. A $2,000 equipment purchase without sales tax means roughly $160 owed to California. But miss several of those throughout the year and you’re looking at meaningful money plus penalties if the CDTFA decides to audit.

If you’re wondering whether you owe use tax, the answer is probably yes. Almost every business makes purchases where sales tax wasn’t collected. Sales tax compliance support can help you identify these transactions and report them correctly so you’re not caught off guard during an audit or scrambling at year end.