Everything you need to know about sales and use tax in the United States
What are sales taxes?
Sales taxes are a state-imposed fee that is collected on most retail purchases. Individual states determine what percentage of a retail sale is to be collected, and what types of sales can be exempted. While the buyer is responsible for paying the tax, it is the seller who is normally tasked with collecting the tax from the buyer and remitting it to the state in a timely fashion.
Tax rates and tax codes vary considerably from state to state across the United States, the District of Columbia and the various possessions. Most states don't levy a state-wide flat tax rate, but rather, allow each county, city, and special district to add on an additional tax of their own. To see detailed information about the general sales tax rates and laws for any given state, click on the map below or use this pull down menu.
To see a full breakout of sales tax rates for the entire country by state, county, city and special district, use our easy United States sales tax calculator. After putting in any ZIP code, you can enter a retail price to calculate sales tax totals.
Taxes in the U.S. are either destination-based, meaning the sales tax rate is based, or determined from, the destination an item is shipped to, or origin-based, meaning the rate is determined by the location the sale took place. It is critical for a retailer to know if the states they are selling product in and/or too are destination or origin based. This makes it complicated for retailers who need to have the exact and up-to-date sales tax rate for a "moving target".
What is use tax?
In most states, use tax is due on every retail purchase that was not charged sales tax, excluding tax-exempt sales. Many, but not all, states charge use tax at the same percentage as sales tax. In some states, use tax rates differ from sales tax rates at the state, county, city and/or special district levels.
Many U.S. tax payers do not realize that use tax is due to the state you reside in on ALL transactions where sales tax has not been paid, even out-of-state internet sales.
How do you know who has to pay whom?
In general, a business must collect and remit all applicable sales taxes if that business has nexus, a physical presence such as a brick-and-mortar location, within a given state. The presence of an employee or salesperson, delivery by the seller's vehicle, and storage of materials usually establishes nexus.
Nexus definitions vary from state to state. Many states say that an out-of-state seller is required to collect tax if they can be defined as "doing substantial business" in a given state. "Substantial business" can sometimes include: out-of-state businesses using in-state affiliates, advertisers or vendors, or businesses that make internet sales or mail catalogs.
If you are not sure if you have established nexus in a given state, you can usually get free help by contacting the state's Department of Revenue. You could also contact a qualified certified public accountant or lawyer who specializes in sales tax.
Special rules applying to sales and use taxes in the United States
- Shipping is frequently not taxable if stated separately on the invoice.
- Finance charges are often exempt from sales tax, when stated separately.
- Often, non-discretionary items, such as food and clothing, are taxed at a rate which is not the same as the general sales tax.
- Frequently, some items are exempted from sales tax for short periods of time, usually called sales tax holidays.
Sales taxes are but one of a mixture of different types of taxes that are used to maintain government, infrastructure, and state-run programs. Other types of taxes include income, corporate, payroll, excise, and more.
Since state legislators can vote to change sales and use tax rates at any time, it is very difficult for individuals to keep track of the changes. The population of most states is also rapidly changing, which can cause frequent updates to the ZIP codes as well as local municipality names, which complicates the job of keeping track of sales tax jurisdictions.