What is sales tax in the United States? An evaluation of sales tax in the United States

Generally speaking, sales tax is a tax imposed on the retail sale of tangible personal property and the provision of certain services. Use tax is a supplement to sales tax and is usually imposed on taxpayers who purchase taxable items outside the state and bring them into the state for use, storage, or consumption. Usually, a taxable transaction is subject to either sales tax or use tax.

It is worth noting that except for five specific states (Alaska, Delaware, Montana, New Hampshire, Oregon), all other states and cities will impose some level of sales tax on retail sales, rentals and leases, and related services. In addition, many cities, counties, transportation authorities, and special purpose districts will impose additional local sales taxes; the federal government in the United States does not have the authority to levy sales taxes.

Taxable items

The purchaser of taxable goods or services is required to pay sales tax unless the purchaser can provide the seller with a certificate stating that the purchase was tax-exempt. The tax-exempt certificate must be in a form approved by the state in question.

Sales tax is levied only on the taxable income of goods or services. The tax is calculated by multiplying the tax rate by the taxable transaction amount. The tax rate varies by state and local area within a state.

Latest tax rates

Five states do not have a state sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon. Alaska allows localities to levy local sales taxes.

The five states with the highest average combined state and local sales tax rates are Tennessee (9.55%), Louisiana (9.52%), Arkansas (9.51%), Washington (9.23%) and Alabama (9.22%). The five states with the lowest average combined rates are Alaska (1.76%), Hawaii (4.44%), Wyoming (5.33%), Wisconsin (5.43%) and Maine (5.50%).

Tax returns and payments

Sellers of taxable property must file a tax return with each jurisdiction in which they are required to collect sales tax. Most jurisdictions require monthly returns, but sellers with small amounts of tax to pay may file quarterly returns.

Sales tax returns typically report all sales, taxable sales, sales by tax-exempt category, and the amount of tax due. If multiple tax rates are imposed (such as on different classes of property sold), these amounts are typically reported for each tax rate. Some states combine state and local sales tax returns, but many local jurisdictions require separate reporting. Some jurisdictions allow returns to be filed online.

Purchasers of goods who do not pay sales tax in their jurisdiction must file a use tax return to report the taxable purchases. Many states allow such reporting to be part of an individual's income tax return.

Application Requirements

In most states, sales tax is collected and remitted by the seller. Use tax is assessed by the buyer. Some states require individuals or organizations that regularly engage in retail business to register as sales tax payers in the state.

If a seller is required to collect sales tax in a certain area, they need to file a sales tax return in that area. Most areas require taxpayers to file tax returns monthly, and sellers with smaller amounts of tax collected can apply for longer reporting periods if they meet certain conditions. Some states allow taxpayers to file state and regional sales tax on a combined tax return, but most areas require taxpayers to file separate regional sales tax returns. Some areas allow or require taxpayers to file electronically.

If the buyer has not paid sales tax in the place where the taxable goods are used, he or she will need to report and pay the use tax locally. Some states allow individuals to report the use tax directly on their personal income tax return.

Tax Payment

All states that impose sales taxes require sellers to remit the sales taxes they collect at least quarterly. Most states require taxpayers who exceed certain prescribed limits to remit taxes in tax periods shorter than a quarter. Some states offer sellers a tax break for paying sales taxes.