Sales Tax Calculations
Sales tax is a consumption tax imposed by state and local governments on retail purchases. Rates vary by location, ranging from 0% in five states (AK, DE, MT, NH, OR) to over 10% in some jurisdictions when combining state, county, and city taxes. California, Louisiana, and Arkansas have the highest combined average rates. Sales tax is calculated as a percentage of the purchase price.
Understanding sales tax helps with budgeting major purchases. A $30,000 car with 8% sales tax costs $32,400 total - the $2,400 in tax significantly impacts affordability. Some states exempt certain items: most exclude groceries, many exclude prescription drugs, and some have tax-free holidays for back-to-school shopping or emergency preparedness supplies.
For businesses, sales tax collection is a legal requirement in states where you have nexus (significant presence). Online sellers must now collect sales tax in states where they have economic nexus (typically $100,000+ in sales or 200+ transactions). Businesses collect tax from customers and remit to states quarterly or monthly. Failure to collect and remit sales tax can result in penalties, interest, and personal liability for business owners.
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Frequently Asked Questions
Five states: Alaska, Delaware, Montana, New Hampshire, and Oregon. However, Alaska allows local sales taxes, so some cities charge sales tax. These states make up revenue through higher property or income taxes.
State sales tax is base rate, but counties, cities, and special districts add their own taxes. For example, California state rate is 7.25%, but with local additions, rates range from 7.25% to 10.75% depending on location.
Varies by state. Most states primarily tax tangible goods. Some tax certain services like car repairs, personal care, or entertainment. Professional services (legal, accounting, medical) are typically exempt. Check your state's specific rules.
Yes, if you itemize deductions, you can deduct state and local taxes (SALT), choosing either income tax or sales tax (not both). The SALT deduction is capped at $10,000 total including property tax.
Yes, in most states. Since the 2018 Wayfair decision, states can require online sellers to collect sales tax even without physical presence. Most major retailers now charge sales tax on all orders based on shipping address.