Sales taxes in the United States

Sales tax by county

State Sales Taxes

Median household income and taxes

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State Sales Taxes

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Average Effective Sales Tax of the 50 States (2007)

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19237 TaxFoundation v2

Sales taxes in the United States are taxes placed on the sale or lease of goods and services in the United States. In the U.S., sales tax is governed at the state level and no national general sales tax exists. Forty-five states, the District of Columbia, and Guam impose general sales taxes that apply to the sale or lease of most goods and some services, and states may also grant local governments the authority to impose additional sales taxes. Each state has its own legislation and regulations regarding sales taxes, leading to a complex system of tax rates and rules.

Overview

Sales tax is calculated by multiplying the purchase price by the applicable tax rate. Tax rates vary widely by jurisdiction, from less than 1% to over 10%. The sales tax rate may be the combination of state, county, city, and district tax rates. Some states provide exemptions for food, prescription medications, and certain other items. The responsibility for collecting the tax typically lies with the seller.

State Sales Tax

Each state in the United States has the authority to impose its own sales tax. The five states that do not impose a general sales tax are Alaska, Delaware, Montana, New Hampshire, and Oregon. However, Alaska allows localities to charge local sales taxes.

Local Sales Tax

In addition to state sales tax, many localities impose their own sales taxes. The rules and rates for local sales taxes are determined by local government entities. These taxes are often imposed to fund specific local projects, such as schools or road construction.

Use Tax

The use tax is a type of tax that complements the sales tax. It is imposed on the use, storage, or consumption of goods within a state that were not taxed at the time of purchase. Use tax applies to purchases made outside the taxing jurisdiction but used within the state. For example, if a resident purchases goods in a state with no sales tax but uses the goods in their home state that has a sales tax, the purchaser is responsible for paying the use tax.

Exemptions and Exceptions

Certain items may be exempt from sales tax at the state or local level. Common exemptions include groceries, prescription medications, and sometimes clothing. Non-profit organizations may also be exempt from paying sales tax on purchases.

Online Sales Tax

The landscape of online sales tax has changed significantly after the United States Supreme Court decision in South Dakota v. Wayfair, Inc. (2018). This ruling allows states to require online retailers without a physical presence in the state to collect and remit sales tax on sales made to customers in the state.

Compliance and Enforcement

Businesses are responsible for collecting the correct amount of sales tax from customers and remitting it to the appropriate tax authority. Failure to comply with sales tax laws can result in penalties and interest charges.

Conclusion

Sales taxes in the United States are a significant source of revenue for state and local governments but also represent a complex system for businesses and consumers. The variation in rates, rules, and exemptions across jurisdictions makes understanding and complying with sales tax laws challenging.