# What Is Use Tax for Contractors?

Use tax is the tax you owe directly to your state when you use, store or consume taxable items there without having paid sales tax on them. For contractors it comes up when materials are bought from out-of-state suppliers that didn't charge tax, when items bought with a resale certificate get used on a job, and on tools and equipment.

## Key takeaways

- Use tax is the mirror image of sales tax: same rate, same base, but you pay it yourself instead of a seller collecting it.
- The classic trigger is an online or out-of-state supplier that didn't charge your state's tax. The tax is still owed.
- If your state treats you as the consumer of materials and you bought them tax-free for resale, you owe use tax when you install them.
- Tools, equipment and consumable supplies are almost always taxable to the contractor, even in states where materials can be bought for resale.
- Report it on your sales and use tax return, or a consumer use tax return if you don't hold a seller's permit. Audits of contractors look here first.

## How does use tax work?

Every state with a sales tax also has a use tax. Sales tax is collected by the seller at the register. Use tax is owed by the buyer when taxable goods are brought into the state, or used in it, without sales tax having been paid. The rate is generally the same, and the point is to stop buyers from avoiding tax by purchasing from sellers who don't collect it. For a trades business, that means every tax-free purchase that ends up on a job or in the shop needs a second look.

**Use tax owed**

```
Use tax = cost of taxable items used in-state without sales tax × your local sales tax rate
```

Where:
- cost = what you paid the supplier, before any tax (some states include freight or fabrication labor; check yours)
- rate = the combined state and local rate where you use the item, usually the job site or your shop

## When does a contractor owe use tax?

**Common use tax triggers for trades businesses**

| Situation | Why use tax applies | Example |
| --- | --- | --- |
| Out-of-state or online supplier didn't charge tax | California's CDTFA says use tax is due whenever you buy taxable items without paying California sales tax from an out-of-state vendor for use in the state | An HVAC shop orders $9,000 of mini-split units from an online wholesaler that charged no tax |
| Bought for resale, then used on a lump-sum job | If your state treats you as the consumer of materials, buying them with a resale certificate doesn't make them exempt; you owe tax when you use them | A Texas remodeler buys lumber with a resale certificate, then does the job under a lump-sum contract |
| Tools, equipment and consumable supplies | Washington's DOR says reseller permits can't be used for items consumed in construction, and use tax is due if sales tax wasn't paid on equipment, tools and supplies | A roofing crew buys nail guns and compressors from a vendor who didn't charge tax |
| Items you fabricate for your own jobs | Florida's DOR says contractors who perform taxable fabrication owe use tax on the fabricated cost of the items | A sheet-metal shop fabricates ductwork for its own installs |
| Materials pulled from inventory for your own use | Inventory bought tax-free for resale becomes taxable when you consume it instead | A plumber uses stock water heaters on his own rental property |
| Materials bought in a low-tax state and used in a higher-tax one | Many states give credit for tax paid elsewhere and charge the difference | A landscaper near a state line buys pavers across the border |

_Based on California CDTFA, Texas Comptroller, Washington DOR and Florida DOR guidance, checked 2026-10-12. Your state's rules may differ._

## How the rules look in five states

- **California.** Contractors are generally the consumers of materials and owe tax on their cost. Purchases from out-of-state vendors that didn't charge California tax go on the sales and use tax return under "Purchases Subject to Use Tax." Contractors who don't need a seller's permit but have $100,000 or more in annual gross receipts must register for a Consumer Use Tax Account. See the [California tax guide](https://www.brix.so/taxes/california).
- **Texas.** Under a lump-sum contract the contractor pays tax on all supplies, materials, equipment and taxable services when buying them. Materials bought with a resale certificate and then used in a lump-sum job are owed as use tax. See the [Texas tax guide](https://www.brix.so/taxes/texas).
- **New York.** Building materials bought for capital improvement work are taxable to the contractor. Materials bought without tax, for example from an out-of-state supplier, trigger use tax when used in the state. See the [New York tax guide](https://www.brix.so/taxes/new-york).
- **Washington.** Prime contractors buy materials that become part of the project with a reseller permit, but owe sales or use tax on equipment, tools and supplies they consume. Using a reseller permit for consumer items carries a 50% misuse penalty under RCW 82.32.291. See the [Washington tax guide](https://www.brix.so/taxes/washington).
- **Florida.** Under lump sum, cost plus, fixed fee, time-and-materials and similar real property contracts, the contractor is the final consumer of materials and must pay tax to suppliers on all purchases, including those for its own use. Contractors performing taxable fabrication owe use tax on the fabricated cost. See the [Florida tax guide](https://www.brix.so/taxes/florida).

> **Example: an electrical contractor's year of use tax (illustrative)**
>
> An electrical contractor in a state where contractors are the consumers of materials buys most supplies locally with tax charged. Three purchases slip through:
>
> **$14,000 of EV charger equipment** from an out-of-state distributor that didn't collect tax. Use tax is owed on the full $14,000.
>
> **$2,500 of wire** bought with a resale certificate for a planned separated contract, then used on a lump-sum job instead. Use tax is owed on the $2,500.
>
> **$3,200 of hand tools and a conduit bender** from an online tool seller that didn't charge tax. Use tax is owed on the $3,200.
>
> At an illustrative combined rate of 8%, that's $19,700 × 8% = **$1,576** the contractor owes directly on its sales and use tax return. Missed, it becomes the first finding in a sales tax audit, with penalties and interest on top.

## How do you track and report use tax?

1. **Flag tax-free purchases when you enter them.** In your bookkeeping system, mark every purchase where the invoice shows no sales tax: online orders, out-of-state suppliers, resale-certificate buys. A "use tax" tag or account makes the year-end total a report, not a hunt.
2. **Decide which were really exempt.** Materials that will be resold on a separated or retail-sale-plus-installation contract may stay exempt. Materials consumed on lump-sum jobs, tools, equipment and supplies usually aren't.
3. **Apply the right rate.** Use the combined rate for the location where you used the item, which for job materials is often the job site. Take credit for any tax legitimately paid to another state, if your state allows it.
4. **Report it on your return.** If you hold a seller's permit, your sales and use tax return has a line for purchases subject to use tax. If you don't, your state has a consumer use tax return or account.
5. **Keep the paper.** Supplier invoices, resale certificates you issued, and job records tying materials to contracts. Auditors reconcile your purchases to your use tax line.

## Use tax vs. sales tax

**Sales tax vs. use tax**

|  | Sales tax | Use tax |
| --- | --- | --- |
| Who pays it to the state | The seller, after collecting it from you | You, directly |
| When | At the time of sale | When you use, store or consume the item in the state |
| Rate | Combined state and local rate at the point of sale | Generally the same combined rate where the item is used |
| Typical contractor case | Supply house charges tax on the invoice | Online supplier charges nothing; resale-certificate materials used on a lump-sum job |
| Where it's reported | Seller's sales tax return | Your sales and use tax return or consumer use tax return |

Whether you owe tax on materials at all depends on how your state taxes contractors; see [sales tax on labor vs. materials](https://www.brix.so/learn/sales-tax-on-labor-vs-materials) for the main models.

## Common use tax mistakes

- **Assuming "no tax on the invoice" means no tax.** It usually means the tax is now your job.
- **Blanket resale certificates.** Giving every supplier a resale certificate, then consuming the goods, builds a use tax liability all year.
- **Forgetting tools and equipment.** Trucks, trailers, compressors and tools are rarely exempt.
- **Using the shop rate for every job.** Some states source use tax to where the material is used.
- **No system.** Use tax owed at year end is impossible to reconstruct from a shoebox of receipts.

> **When to get a CPA or the state involved**
>
> Ask a CPA or enrolled agent who knows your state's sales and use tax before you issue resale certificates, when you start buying from out-of-state suppliers in volume, and before any voluntary disclosure if you find back use tax you never reported.

BRIX keeps every expense categorized and synced with QuickBooks and tracks sales tax on your invoices, so purchases without tax are easy to flag and total when your return is due. BRIX doesn't calculate or file use tax or give tax advice.

- [Bookkeeping and tax help](https://www.brix.so/features/bookkeeping-taxes): Keeps expenses categorized, tracks 1099 subcontractors and sales tax, and reminds you of quarterly estimated tax dates. BRIX does not file taxes or give tax advice.
- [QuickBooks sync](https://www.brix.so/integrations/quickbooks): Syncs customers, invoices and payments with QuickBooks so the books match the jobs.

## Frequently asked questions

### What is use tax in simple terms?

Use tax is sales tax you pay yourself. When you buy taxable goods and the seller doesn't collect your state's sales tax, often because the seller is out of state, you owe the same tax directly to your state for using the goods there.

### Do contractors have to pay use tax on materials?

In states where the contractor is the consumer of materials, yes, whenever sales tax wasn't paid at purchase. That includes out-of-state orders and materials bought with a resale certificate but then used on a lump-sum job. California, Texas, New York and Florida all apply this in some form.

### Do I owe use tax on tools and equipment I buy online?

Usually yes, if the seller didn't charge your state's sales tax. Tools, equipment and supplies are consumed by the contractor, not resold, so reseller permits generally can't be used for them. Washington's DOR, for example, says use tax is due on equipment, tools and supplies when sales tax wasn't paid.

### What is the use tax rate?

It's generally the same combined state and local rate as the sales tax where you use the item. Rates vary by city and county, so use your state's rate lookup for the job site or shop address.

### How do I report use tax?

If you hold a seller's permit or sales tax license, your regular sales and use tax return has a line for purchases subject to use tax. If you don't, states offer a consumer use tax return or account. California, for example, requires contractors without a seller's permit who have $100,000 or more in annual gross receipts to register for a Consumer Use Tax Account.

### What happens if I don't pay use tax?

Unreported use tax is a common audit finding for contractors. States assess the tax plus penalties and interest, and auditors typically reconcile purchase records against the use tax reported. Many states offer voluntary disclosure programs that reduce penalties if you come forward first.

### Can I get credit for sales tax I paid to another state?

Many states allow a credit for sales tax legitimately paid to another state on the same item, so you owe only the difference if your rate is higher. Rules differ, so check your state's revenue department guidance or ask a CPA.

## Related

- [Do Contractors Charge Sales Tax on Labor or Materials?](https://www.brix.so/learn/sales-tax-on-labor-vs-materials)
- [California Contractor Taxes and Licensing Guide](https://www.brix.so/taxes/california)
- [Texas Contractor Taxes and Licensing: Labor, Materials, Franchise Tax and Licenses](https://www.brix.so/taxes/texas)
- [New York Contractor Taxes and Licensing: What Trades Need to Know](https://www.brix.so/taxes/new-york)
- [Washington Contractor Taxes and Licensing Guide](https://www.brix.so/taxes/washington)
- [Florida Contractor Taxes and Licensing: Sales Tax, Licenses and Workers' Comp](https://www.brix.so/taxes/florida)
- [Bookkeeping Checklist for Contractors (Weekly, Monthly, Year-End)](https://www.brix.so/learn/bookkeeping-checklist-for-contractors)
- [Taxes for Contractors: The 2026 Guide for Self-Employed Trades Owners](https://www.brix.so/guides/contractor-taxes)
- [Bookkeeping for contractors that keeps your books tax-ready all year](https://www.brix.so/features/bookkeeping-taxes)
- [Quarterly Estimated Tax Calculator for Self-Employed Contractors (2026)](https://www.brix.so/tools/quarterly-estimated-tax-calculator)

## Sources

- [California CDTFA — Tax Guide for Construction Contractors: industry topics (use tax on out-of-state purchases; Consumer Use Tax Account)](https://cdtfa.ca.gov/industry/construction-contractors/industry-topics.htm) (checked 2026-10-12)
- [Texas Comptroller — Publication 94-116, Real Property Repair and Remodeling](https://comptroller.texas.gov/taxes/publications/94-116.php) (checked 2026-10-12)
- [New York State Department of Taxation and Finance — Tax Bulletin: Capital improvements](https://www.tax.ny.gov/pubs_and_bulls/tg_bulletins/st/capital_improvements.htm) (checked 2026-10-12)
- [Washington Department of Revenue — Custom construction (use tax on tools, equipment and supplies; reseller permit misuse)](https://dor.wa.gov/education/industry-guides/construction/custom-construction) (checked 2026-10-12)
- [Florida Department of Revenue — GT-800067, Sales and Use Tax on Construction, Improvements, Installations and Repairs](https://floridarevenue.com/forms_library/current/gt800067.pdf) (checked 2026-10-12)

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Written by BRIX Editorial Team. Last updated 2026-10-12. General information, not tax, legal or financial advice.
Canonical: https://www.brix.so/learn/use-tax-for-contractors