United States (US) Sales Tax can be a complex area for businesses to navigate and there are some key facts you should be aware of:
1. Sales Tax Rates Are Not Uniform Nationally Across The US
The US does not have one unified national sales tax rate. Each state sets and administers its own sales tax. There is then a combined tax rate.
Combined Tax Rate
This is made up of the combined total of state and local tax rates, however, please note that it is an average rather than exact number.
When making a purchase or transaction, individuals typically encounter this combined rate, which represents the overall total sales tax that must be paid and includes the base price of the goods or services plus the sales taxes from each level.
States with the highest average combined tax rates (State plus average local tax rate)[/vc_column_text][vc_empty_space empty_h=”0″][vc_raw_html]JTVCdGFibGUlMjBpZCUzRDElMjAlMkYlNUQ=[/vc_raw_html][vc_empty_space empty_h=”1″][vc_column_text uncode_shortcode_id=”163241″]States with the lowest average combined tax rates:[/vc_column_text][vc_empty_space empty_h=”0″][vc_raw_html]JTVCdGFibGUlMjBpZCUzRDIlMjAlMkYlNUQ=[/vc_raw_html][vc_empty_space empty_h=”0″][vc_column_text uncode_shortcode_id=”714486″]State Tax Rates
Aside from the combined tax rates, you will often see state-level tax rates discussed, which are summarised in the below:[/vc_column_text][vc_single_image media=”119963″ media_width_percent=”100″ uncode_shortcode_id=”152268″][vc_empty_space empty_h=”1″][vc_column_text uncode_shortcode_id=”641723″]States with the highest state tax rates[/vc_column_text][vc_raw_html]JTVCdGFibGUlMjBpZCUzRDMlMjAlMkYlNUQ=[/vc_raw_html][vc_empty_space empty_h=”0″][vc_column_text uncode_shortcode_id=”240271″]States with the lowest state tax rates*[/vc_column_text][vc_raw_html]JTVCdGFibGUlMjBpZCUzRDQlMjAlMkYlNUQ=[/vc_raw_html][vc_column_text uncode_shortcode_id=”199705″]* Excludes states with no sales tax[/vc_column_text][vc_empty_space empty_h=”0″][vc_column_text uncode_shortcode_id=”317604″]
2. Four States Have No Sales Tax At All
There are four States in the US with no Sales Tax:
- Delaware
- Montana
- New Hampshire
- Oregon
Technically, Alaska also has no State-level Sales Tax, but it does impose local Sales Taxes at an average rate of 1.821% as of September 2024.
3. There Is A Sales Tax Nexus
If a seller establishes a Nexus (economic connection) in a State, either by having a physical presence or through economic activities, they are required to register for a Sales Tax Permit with the State’s tax authority.
The process for registering for a Sales Tax Permit generally involves:
- Registering for a Federal Employer Identification Number (FEIN): US business owners with an SSN or ITIN can apply for a FEIN by completing Form SS-4 online and receiving it via email. International businesses without an SSN or ITIN can apply by phone with the IRS.
- Determining the registration location and method.
- Providing necessary business information, such as the business type, legal name, ownership details, business activities, and product information.
- Completing the registration process either online or by submitting a paper application form.
4. Remote Sellers Need To Collect Sales Tax When You Meet The Economic Nexus Thresholds
You are required to collect Sales Tax if you meet certain Economic Nexus thresholds. Currently, all 45 states that have a general Sales Tax Law, and Washington D.C., have implemented Economic Nexus Thresholds. While these vary by State, they typically require a transaction value of $100,000 or a transaction count of 200 in a prescribed 12-month period.[/vc_column_text][vc_single_image media=”119964″ media_width_percent=”100″ uncode_shortcode_id=”120586″][vc_column_text uncode_shortcode_id=”196385″]
5. Sales Tax Permits Expire
Sales Tax Permits can expire. In some States, the Permit will renew automatically, while in others, businesses need to actively renew it periodically. Additionally, some States may charge a renewal fee.
6. Sales Tax Filing Frequency Varies
The frequency of Sales Tax filings isn’t limited to monthly, quarterly, or yearly filings. Generally, tax authorities adjust the filing frequency based on your sales volume. Sellers need to stay alert to changes in filing frequency to avoid missing or incorrect filings.
7. Sales Tax Must Be Collected Across All Sales Channels
Businesses may get confused about collecting Sales Tax when selling products or services across different platforms. For example, they may sell in physical stores, on their own websites, on Amazon Marketplace, and via social media. If you have a Sales Tax Nexus in a State, you (or the platform) are required to collect Sales Tax from all customers across all sales channels in that State.
8. Sales Tax Base Varies Across States
In actual business operations, sellers must not only consider tax rates but also differences in tax bases between States. For instance, some States exempt groceries from Sales Tax, some apply limited Sales Tax to groceries, and others offer exemptions or reduced rates on clothing.
Tax experts generally recommend that Sales Tax should apply to final retail goods and services but not to intermediate transactions between businesses. This ensures that the tax system is broad-based yet ‘moderate’, meaning that each product is only taxed once in the marketplace. However, there are some differences in practice. For example, Hawaii has one of the broadest Sales Tax bases in the nation, applying the tax multiple times to many products.[/vc_column_text][/vc_column][/vc_row][vc_row row_height_percent=”0″ override_padding=”yes” h_padding=”2″ top_padding=”0″ bottom_padding=”2″ overlay_alpha=”50″ gutter_size=”3″ column_width_percent=”100″ shift_y=”0″ z_index=”0″ content_parallax=”0″ uncode_shortcode_id=”103916″][vc_column column_width_use_pixel=”yes” gutter_size=”3″ overlay_alpha=”50″ shift_x=”0″ shift_y=”0″ shift_y_down=”0″ z_index=”0″ medium_width=”0″ mobile_width=”0″ width=”1/1″ uncode_shortcode_id=”131262″ column_width_pixel=”750″][vc_column_text uncode_shortcode_id=”208811″]
Would you like to know more?
If you need help ensuring you are compliant with US Sales Tax please get in touch with one of our experts by emailing info@taxdesk.com.[/vc_column_text][vc_empty_space empty_h=”2″][uncode_share layout=”multiple” no_back=”yes” separator=”yes”][/vc_column][/vc_row]