In the United States, each state decides its own sales tax rates, and local governments can add extra taxes on top of the state’s rate.
- State sales tax: Most U.S. states impose sales taxes on the purchase of goods and some services, with each state having its own tax rate.
- Local sales tax: Local governments, such as counties and cities, add their own sales taxes to the state rate.
What’s taxable and what’s not
Sales taxes are applied only to taxable sales of goods and services, mostly to tangible personal property. Many states exempt essentials like groceries, prescription drugs, and clothing from sales tax.
Sales tax essentials
- Sales tax collection: Retailers are responsible for collecting sales tax from customers at the point of sale
- Sales tax remittance: Retailers send the collected sales tax to state and local tax authorities.
- Online sales tax: The 2018 Supreme Court decision in South Dakota v. Wayfair, Inc., allows states to mandate collecting sales tax from online and out-of-state sellers, regardless of their physical presence in the state
Sales tax compliance
- Businesses must register with the state tax authority, collect the appropriate sales tax, and file tax returns regularly.
- Consumers may need to pay use tax on out-of-state purchases where sales tax was not collected.
Sales tax rates variations
State sales tax rates: They range from 0% in states like Delaware, Montana, New Hampshire, and Oregon, to over 7% in states including California, Indiana, Mississippi, Rhode Island, and Tennessee.
Local sales tax rates: Local taxes can increase the overall sales tax rate. In Tennessee, for example, the combined state and local rate can exceed 9%