Use Tax Liability: When Buyers, Sellers, And Marketplaces Are Responsible

Use Tax is a tax generally imposed on taxable purchases used in a state when the corresponding sales tax was not collected. Determining who is responsible—buyer, seller, or marketplace facilitator—depends on state law, nexus, and marketplace rules.

Understanding allocation of liability is essential for retailers, logistics providers, and merchants using third-party marketplaces. Misunderstanding who must remit can create double taxation, uncollected tax exposure, or missed refunds.

Buyer Liability

Traditionally, use tax is a buyer liability: when a seller does not collect sales tax, the buyer self-assesses and remits use tax to the state. This applies to consumers and businesses but is more commonly enforced against businesses, which are expected to report and substantiate their tax positions.

• Consumer vs Business: Consumers are subject to use tax but enforcement is limited; businesses face stronger scrutiny and must maintain records of tax paid or exemptions claimed.
• Self-Reporting: Many states include a line on income or sales tax returns for businesses to report use tax owed on taxable purchases where sales tax was not collected.

Seller Liability

If a seller has nexus in the buyer's state, the seller is generally required to collect sales tax at the point of sale and remit it. Nexus arises from physical presence, economic activity thresholds, or specific state statutes targeting certain seller behaviors (e.g., affiliate nexus).

• Collect If You Have Nexus: Sellers meeting a state's nexus criteria must collect sales tax regardless of whether the buyer is local or out-of-state.
• Registration And Remittance: Sellers must register, file returns, and remit collected taxes on the schedule required by the state (monthly, quarterly, or annually).

Marketplace Facilitator Responsibility

Recent state legislation often assigns collection responsibility to marketplace facilitators. Under these laws, the marketplace—not the individual third-party seller—collects and remits tax for transactions processed through the platform. This reduces the compliance burden for small sellers but creates obligations for the marketplace operator.

• Platform Collection: Marketplaces that meet state definitions of a facilitator must identify the destination state and collect the appropriate tax.
• Reporting To Sellers: Facilitators typically provide sellers with transaction reports and tax remittance summaries needed for accounting and exemption tracking.

Allocating Liability In Complex Flows

Complex supply chains—dropship arrangements, FBA warehouses, cross-border transfers—introduce mixed liabilities. For example, storing inventory in a third-party warehouse can create physical nexus, making the seller liable to collect sales tax on future sales into that state.

• Fulfillment Centers: Inventory located in a state often creates nexus for the seller, creating collection obligations for future sales shipped from that inventory.
• Dropshipping: Determine which party has nexus and who is the seller of record; legal agreements and invoicing matter for liability allocation.

Audit Risk And Mitigation

States pursue uncollected use tax through audits and data-matching programs. Tax authorities receive purchase information from card processors, marketplaces, and large retailers and may target businesses with unexplained purchases from out-of-state vendors.

• Keep Detailed Records: Maintain invoices, exemption certificates, and marketplace reports to support positions during audits.
• Engage Tax Counsel: For complex nexus or fulfillment arrangements, get specialized tax advice and consider voluntary disclosure to limit exposure.

In short, the Use Tax creates obligations that can fall on buyers, sellers, or marketplace facilitators depending on nexus, state law, and contractual arrangements. Retailers should map their supply chain and sales channels, confirm who collects tax in each flow, and document transactions and exemptions to manage liability and reduce audit exposure.