Sales tax is a form of tax collected on goods and services within a specific jurisdiction. Sales tax can be more complicated than other tax forms because the government can levy taxes on different transactions or even based on a particular good or service. Additionally, the tax rate varies depending on where the sale took place or where the company selling the product is registered.
1. State Governments Regulate Sales Taxes
Sales taxes are a national sales tax that is levied on goods and services purchased in a state. Without a sales tax, some goods purchased in one state are priced differently because of different sales tax rates in each state. It is often mistaken that the federal government levies sales taxes, but this is one of those taxes wholly decided upon on a state-by-state basis.
2. Only Four States Are Sale Tax-free
While many people believe that Alaska is one of them, this is not entirely true. This is because while there is no sales tax at the state level, the government of Alaska does allow municipalities to levy their own sales tax. This means that the tax rates can vary from city to city. However, which state is entirely free of sales tax?
- Delaware
- Montana
- New Hampshire
- Oregon
These four states have abolished sales tax altogether.
3. Tax Is Not Applicable To All Items
A retailer who sells tangible personal property is generally required to charge sales tax to customers. Certain items, however, are exempt from state licensing. Some states have tax-exempt clothing, while others need buyers to pay sales tax if they spend a certain amount on apparel. Another state may tax all clothing sales. In addition, some products may be taxed differently from state to state.
4. In Many States, A Sales Bond Is Required
Across the nation, most states require a sales and use tax bond. Bonds like these guarantee that a business will pay its taxes on time. This bond is necessary for retail companies, as well as lessors and renters. As well as assuring financial credibility, these taxable bonds also ensure business responsibility. It is not acceptable for businesses to tell the state they cannot pay their taxes when it is due. A surety bond proves to the state the financial stability of a company.
5. Destination-based Vs. Origin-based
Online sellers can charge buyers in their home state differently depending on whether they live in a state where the sales tax is based on origin or destination. Online sales taxes in origin-based states are calculated at the location-specific rate (your home or warehouse, wherever you place the order). However, most states impose sales tax based on the destination, so you need to charge that tax when shipping to your buyer. To calculate your tax, visit Irs Penalty and Interest Calculator.
- Origin based: A state’s sales tax laws are based on the local taxing authority’s determination of where the item is produced or sold. So, in California, the state’s sales tax laws are based on the “origin” of the product. The “origin” is determined by the seller (or manufacturer) and not the purchaser (or consumer).
- Destination-based: Destination-based sales tax refers to a type of tax where the tax is charged to the final consumer at the time of purchase.
6. Dates On Which Sales Tax Is Due Vary
The state sales tax rates vary depending on the state you live in. As a result, you should double-check the states where you do business to make sure you are collecting the correct tax. Considering that sales tax is governed by state law, your online sales tax returns can be due on a different day of the month, depending on your state. This can cause headaches for businesses that operate over state lines, but once they get into the routine of filing taxes on different dates, it becomes easier.
7. Sales Tax Is More Than Just Rates
Whenever people hear the word “sales tax,” they think of rates, and getting the rates right is undoubtedly crucial. Local governments in some states collect their taxes, while only state sales taxes are collected in others. Depending on the jurisdiction, the total sales tax rate could comprise a state tax, a county tax, a city tax, and one or more extra taxes (such as a transportation tax or an economic development tax).
Sales tax is the tax charged on purchasing goods and services and is levied by state or local governments. The percentage of sales tax varies by state and by the type of product. It is usually applied at the time of purchase. The tax is imposed in the United States to sell goods and services at the retail level.
