Chances are you鈥檝e experienced paying a 6% sales tax rate at one store, then paying 8.15% at another store just a few miles away.
Have you ever stopped to scratch your head and wonder why?
Today, we鈥檙e bringing you the definitive explanation on why U.S. sales tax rates vary so much, and why it鈥檚 important that you, as an online seller, collect the correct rate.
The anatomy of a sales tax rate
In the United States, sales tax is administered at the state level. This means that there are different sets of sales tax rules and laws in 45 U.S. states and Washington D.C. Five U.S. states don鈥檛 have a sales tax.
Sales tax is a
States rely on sales tax to fund budget items like roads and schools, so they have a vested interest in making sure that merchants in a state are collecting the right amount of sales tax from buyers in the state.
With all these different states, rules and laws come a veritable cornucopia of sales tax rates! Let鈥檚 break it down.
Related:
State sales tax rates
Each of the states with a sales tax has a statewide sales tax rate. This rate generally varies from
Local sales tax rates
Most states also allow local counties, cities and other districts to have a sales tax. These are generally
Special district taxes
A final kind of sales tax includes the “special taxing district.”
These types of local sales taxes may apply to a group of cities or counties. The special taxing district sales tax generally goes to fund something that benefits the entire district, such as education or a mass transit system.
To see how all these different types of sales taxes combine, let鈥檚 look at the sales tax rate in Centennial, Colorado.
| The Sales Tax Rate in Centennial, Colorado | ||||||
|---|---|---|---|---|---|---|
| Colorado State Rate | 2.9% | |||||
| Arapahoe County | 0.25% | |||||
| City of Centennial | 2.5% | |||||
| Regional Transportation District Tax | 1% | |||||
| Scientific and Cultural Facilities District | 0.1% | |||||
| Total | 6.75% | |||||
State, county, city and two special district tax rates combine for a total of 6.75% sales tax. Compare that with nearby Lakewood, which has a 7.5% sales tax rate. All throughout the U.S. you鈥檒l find varying sales tax rates.
Related: 5 Steps to Sales Tax Compliance for 黑料门 Merchants
Sales Tax Rate Exceptions
But wait, there鈥檚 more.
It鈥檚 not as simple as charging the sales tax rate at your home office or at your buyer鈥檚 location. A few more factors come into play before you, as an online seller, can be sure you鈥檙e collecting the correct sales tax rate:
Origin and destination-based sales tax collection
Some states are
Most states are
If you have nexus in more than one state, the states where you have nexus but are not based are considered your “remote states.”
If you sell to a buyer in a remote state, you generally are simply required to either charge the tax rate at your buyer鈥檚 location or simply the state tax rate.
Product taxability
States make their own rules about which items are taxable, too.
While most tangible personal property is taxable, sometimes states will choose not to require sales tax on things like groceries or clothing.
And this isn鈥檛 always straightforward. New York, for example, doesn鈥檛 require sales tax on clothing items less than $110.
But some counties and local areas can require sales tax on those same items. So in New York, you may find yourself charging your customer a county and city rate but not the New York state rate on a $120 pair of jeans. Confusing, I know!
Shipping taxability
Another consideration, especially for online sellers, is whether or not you are required by the state to charge sales tax on the shipping charges you charge to your customer.
Some states require , and others don鈥檛.
Sales tax holidays
About 1/3 of U.S. states also have some form of a “sales tax holiday.” Sales tax holidays are periods spanning a weekend (or sometimes a little longer) where certain items like school supplies or emergency weather preparedness items are sales
All of these factors — origin and destination based sales tax sourcing, shipping and product taxability, and sales tax holidays — combine to make charging the right amount of sales tax pretty darn difficult.
The Sales Tax Rate Solution for 黑料门 Sellers
Collecting the right sales tax rate on your own can be tough. But 黑料门 has partnered with TaxJar to provide sales tax calculations that take all of these scenarios into account.
You don鈥檛 have to fret that you鈥檙e not collecting the right amount of sales tax. Instead, you can get to work on the aspects of your business that actually turn a profit!
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