What is Sales Tax? An Ultimate Guide

Are you a new ecommerce business owner trying to understand sales tax? Here's a concise overview to get you started.

What is Sales Tax?

Sales tax is a consumption tax added to the sale price of goods and services, collected by the state to fund various programs. It’s regulated at state and local levels, leading to variations across different regions.

How Does Sales Tax Work?

Sales tax is calculated as a percentage of the sales price and varies by location. For example, if you sell an item for $50 in Glendale, California, you’d charge an additional $5.13 in sales tax, totaling $55.13.?

Here’s the breakdown:

• California State Tax: 7.25%
• Los Angeles County Tax: 2.25%
• Glendale City Tax: 0.75%
• Total: 10.25%

Sellers are responsible for collecting and remitting this tax to the appropriate authorities.

States with and without Sales Tax

States Collecting Sales Tax:

45 states plus the District of Columbia collect state-wide sales tax. Exceptions within states include local governments like those in Alaska.

States Not Collecting Sales Tax:

• Alaska (local jurisdictions may collect)
• Delaware
• Montana
• New Hampshire
• Oregon

Sales Tax Rates by State

Here's a snapshot of state sales tax rates:

• Alabama: 4%
• Arizona: 5.60%
• California: 7.25%
• Florida: 6%
• Illinois: 6.25%
• Texas: 6.25%
• New York: 4%
• Washington: 6.50%
• Wyoming: 4% (For a complete list, refer to a detailed state tax rate chart.)

FAQs

• Do online sellers need to collect sales tax? Yes, you must collect sales tax for sales in your home state and other states where you have nexus.
• What are sales tax holidays? These are periods when specific items can be purchased tax-free to boost consumer spending.
• Are food, clothing, SaaS, and shipping taxable? Taxability varies by state. Generally, food and clothing may have exemptions, SaaS can be taxed in some states, and shipping taxes also differ.
• Do tourists pay sales tax in the US? Yes, tourists pay sales tax like residents, though some states allow refund requests for certain products.

Need Help with Sales Tax?

TaxHero offers expert assistance to manage your sales tax, allowing you to focus on growing your business. Contact us to streamline your sales tax processes and ensure compliance.