net sales

Sales taxes in the United States

Sales taxes in the United States are a tax added onto the price of goods or services that are purchased in the United States. A sales tax is a tax on consumption, which is displayed as a percentage of the sale price. Sales taxes are assessed by every state except Alaska, Delaware, Montana, New Hampshire and Oregon. Hawaii has a similar tax although it is charged to businesses instead of consumers. In some cases, sales taxes are also assessed at the county or municipal level.

The sales tax is the responsibility of the merchant to collect and remand to the state, and stated separately (or implicitly added at the time of sale) to consumers. Usually only consumers are charged the tax; resellers are exempt if they do not make use of the goods. In some jurisdictions, a reseller's certificate is required to make use of this privilege. This is in contrast to a Value Added Tax (VAT), where resellers are also taxed (resellers may then claim the VAT paid on their purchases from the applicable authority). States which have exemptions for specific types of organizations (such as schools), may also require a certificate. A sales tax audit is the examination of a company’s financial documents by the state’s tax agency to verify if they have collected the correct amount of sales tax from their customers.

The Constitution of the United States limits the power of the states to subjects within their jurisdiction. Jurisdiction over interstate commerce is reserved to the federal government. Nevertheless, a resident of a state with a sales tax who purchases goods from a place with no sales tax (or at a lower rate) might be subject to pay a "use tax" (often at the same rate as the state sales tax) for non-exempt purchases (see also tax-free shopping). While there is no national sales tax in the United States, the Fair Tax Act, which would replace federal income taxes with a sales tax and monthly rebate, has attracted interest in the United States Congress and the 2008 presidential campaign.

History

In 1921, West Virginia became the first US state to enact a sales tax . Georgia passed legislation enacting a sales tax in 1929. 11 other states enacted sales taxes in 1933 alone. By 1940, at least 30 states had a sales tax. Currently, 45 of the 50 U.S. States levy a sales and use tax against purchases.

States and federal districts

Alabama

Alabama has a state general sales tax of 4%, plus any additional local taxes which can amount to a combined total sales tax of up to 10% in some cities such as Montgomery. Alabama is one of several states that do not exempt food from state taxes.

Alaska

There is no state sales tax in Alaska; however, local governments (boroughs and their municipalities) may levy up to 7%, and 108 of them do so. Municipal sales taxes are collected in addition to borough sales taxes, if any. Regulations and exemptions vary widely across the state. Anchorage and Fairbanks do not charge a local sales tax.

Arizona

Arizona has a transaction privilege tax (TPT) that differs from a "true" sales tax in that the tax is levied on the gross receipts of the vendor and is not a liability of the consumer. (As explained in Arizona Administrative Code rule R15-5-2202, vendors are permitted to pass the amount of the tax on to the consumer, but remain the liable parties for the tax to the state.) TPT is imposed under sixteen tax classifications (as of November 1, 2006), with the tax rate most commonly encountered by Arizona consumers (e.g., for retail transactions) set at 5.6%, though cities and counties add as much as 5% to the total rate. Food for home consumption and prescription drugs (including legend drugs and certain prescribed homeopathic medication) are two of many items of tangible personal property that are statutorily exempt from the retail TPT. Arizona's TPT is one of the few excise taxes in the country imposed on contracting activities rather than sales of construction materials.

Arkansas

Arkansas has a state sales tax of 6%, plus any additional local taxes.

Effective July 1, 2007, Arkansas state sales tax on unprepared food (groceries) reduced to 3%. Local sales taxes on groceries remained unchanged.

California

California has a statewide sales tax of 7.25%, and local supplementary taxes are allowed up to 9.25%. Sales and use taxes in the state of California are collected by the State Board of Equalization, the only publicly elected tax commission in the United States. The statewide 7.25% is allocated as:

  • 6.25% - State
    • 5.00% - State - General Fund
    • 0.25% - State - Fiscal Recovery Fund
    • 0.50% - State - Local Revenue Fund
    • 0.50% - State - Local Public Safety Fund
  • 1.00% - Uniform Local Tax
    • 0.25% - Local County - Transportation funds
    • 0.75% - Local City/County - Operational funds

Supplementary sales tax may be added (with voter approval) by cities, counties, service authorities, and various special districts (such as the Bay Area Rapid Transit district). The effect is that sales tax rates vary from 7.25% (in areas where no additional taxes are charged) to 8.75% (for example, in the city of Avalon, on Santa Catalina Island, in National City, and in Alameda County). On Oct. 1, 2008, the city of South Gate recently increased their sales-tax rate to 9.25%, the highest in California.

The last changes to the published local tax rates took effect on April 1, 2007. Official updates are published on the Board of Equalization website and also in Publication 71.

In general, sales tax is required on all purchases of tangible personal property to its ultimate consumer. Services are not subject to sales tax (but may be subject to other taxes).

Vehicle purchases are taxed based on the city and county in which the purchaser registers the vehicle, and not on the county in which the vehicle is purchased. There is therefore no advantage in purchasing a car in a cheaper county to save on sales tax (a one-percent difference in sales tax rate would otherwise result in an additional $300 loss on a $30,000 car).

Groceries are not taxed. Ready-to-eat hot foods, whether sold by supermarkets or other vendors, are taxed. Restaurant bills are taxed. As an exception, hot beverages and bakery items are tax-exempt if and only if they are for take-out and are not sold with any other hot food. If consumed on the seller's premises, such items are taxed like restaurant meals. All other food is exempt from sales tax.

Also excluded are food animals (livestock), food plants and seeds, fertilizer used to grow food, prescription drugs and certain medical supplies, energy utilities, certain alternative energy devices and supplies, art for display by public agencies, and veterans' pins. There are many specific exemptions for various veterans', non-profit, educational, religious, and youth organizations. Sale of items to certain out-of-state or national entities (mostly transportation companies) is exempt, as are some goods sold while in transit through California to a foreign destination.

Occasional or one-time sales not part of a regular business are exempt, except that sales of three or more non-food animals (puppies, kittens, etc.) per year are taxed.

There are also exemptions for numerous specific products, from telephone lines and poles, to liquid petroleum gas for farm machinery, to coins, to public transit vehicles. There are partial exemptions for such varied items as racehorse breeding stock, teleproduction service equipment, farm machinery, and timber-harvesting equipment. For an organized list of exemptions, with estimates for how much revenue the state loses and the people saves for each, see Publication 61 of the Board of Equalization.

Sales tax is charged on gasoline. The tax is levied on both the gasoline and on the federal and state excise taxes, resulting in double taxation. The sales tax is included in the metered price at the pump. The California excise tax on gasoline is 18 cents a gallon.

Motor vehicle gasoline and jet fuel are subject to special taxation regimes. In 2005, there was a political dispute in the San Francisco Bay Area about whether revenues for jet fuel should be credited to San Mateo County (where San Francisco International Airport is physically located), the City and County of San Francisco, which owns the airport, or Alameda County, where Oakland International Airport is located. (The distinction is largely point of delivery vs. point of negotiation for the sale.) This is controlled by Regulation 1802, which has other provisions about businesses which have multiple locations.

Critics of the current sales tax regime charge that it gives local governments an incentive to promote commercial development (through zoning and other regulations) over residential development, including the use of eminent domain condemnation proceedings to transfer real estate to higher sales tax generating businesses.

Colorado

Colorado's state sales tax is 2.9% with some cities and counties levying additional taxes. Denver's tangibles tax is 3.5%, with food eaten away from the home being taxed at 4%. There is also a football stadium tax and mass transit tax. Most transactions in Denver and the surrounding area are taxed at a total of about 8%. Colorado does not charge sales tax on unprepared food (groceries).

Connecticut

Connecticut has a 6% sales tax, with no additional local taxes. Most non-prepared food products are exempt, as are most prescription and nonprescription medications, all internet services, all magazine and newspaper subscriptions, and textbooks (for college students only). Most clothing costing less than $50 per item is also exempt; items costing more than $50 are charged sales tax on the entire price.

Shipping and delivery charges (including charges for U.S. postage) made by a retailer to a customer are subject to sales and use taxes when provided in connection with the sales of taxable tangible personal property or services. The tax applies even if the charges are separately stated and applies regardless of whether the shipping or delivery is provided by the seller or by a third party. No tax is due on shipping and delivery charges in connection with any sale that is not subject to sales or use tax. Shipping or delivery charges related to sales for resale or sales of exempt items are not taxable. Likewise, charges for mailing or delivery services are not subject to tax if they are made in connection with the sale of nontaxable services.

When taken into account Connecticut has the highest EFFECTIVE tax rate in the contential United States.

Delaware

Delaware does not assess a sales tax on consumers. The state does, however, impose a tax on the gross receipts of most businesses. Business and occupational license tax rates range from 0.096 percent to 1.92 percent, depending upon the category of business activity.

District of Columbia

Washington, D.C. has a sales tax rate of 5.75%. The tax is imposed on sale of tangible personal property and selected services. A 9% tax is imposed on liquor sold for off premises consumption, 10% on restaurant meals and rental cars, 12% on parking, and 14% on hotel accommodations. Groceries, prescription and non-prescription drugs, and residential utilities services are exempt from the District's sales tax.

The District has two sales tax holidays each year, one during "back-to-school" and one preceding the holiday shopping season.

Florida

Florida has a general sales tax rate of 6%. The tax is imposed on the sale or rental of goods, the sale of admissions, the lease, license, or rental of real property, the lease or rental of transient living accommodations, and the sale of a limited number of services such as commercial pest control, commercial cleaning, and certain protection services. There are a variety of exemptions from the tax, including groceries and prescriptions.

A "discretionary sales surtax" may be imposed by the counties of up to 1.5%, charged at the rate of the destination county (if shipped). This is 1% in most counties, 0.5% in many, 1.5% in very few, and 0.25% in one county. A few have none at all. Most have an expiration date, but a few do not. Only the first $5,000 of a large purchase is subject to the surtax rate. Most counties levy the surtax for education or transportation improvements.

Basic food items are exempt from the sales tax.

There are annual sales tax holidays, such as a back-to-school holiday on clothing, books, and school supplies under a certain price, as well as a new one in June 2007 to promote hurricane preparedness. The 2008 Legislators did not enact any sales tax holidays.

Florida also permits counties to raise a "tourist development tax" of up to an additional 6% on hotel rooms.

Georgia

Georgia has a 4% state sales tax rate. Groceries are exempt from the state sales tax, but still subject to tax by the local sales tax rate. Counties may impose local sales tax of 1%, 2%, or 3%, consisting of up to three 1% local-option sales taxes (out of a set of five) as permitted by Georgia law. These include a SPLOST, a homestead exemption (HOST), and one for public schools which can be put forth for a referendum by the school board instead of the county commission (in cooperation with its city councils). Also, the city of Atlanta imposes an additional 1% municipal-option sales tax (MOST), as allowed by special legislation of the Georgia General Assembly, solely for the purpose of fixing its water and sewerage systems.

As of July 2008, total sales tax rates in Georgia are 3% for groceries and 7% for other items in the vast majority of its 159 counties. A few counties charge only 2% local tax (6% total on non-grocery items), and four partially exempt groceries from the local tax by charging 2% on food, and 3% (7% total) on other items. Fulton and DeKalb counties charge 1% for MARTA, and adjacent metro Atlanta counties may do so by referendum if they so choose. For the portions of Fulton and DeKalb within the city of Atlanta, the total is at 8% (4% on groceries) due to the MOST.

Similar to Florida and certain other states, Georgia has two sales tax holidays per year. One is for back-to-school sales the first weekend in August, but sometimes starting at the end of July. A second usually occurs in October, for energy-efficient appliances with the Energy Star certification.

Georgia has many exemptions available to specific businesses and industries. To identify potential exemptions, businesses and consumers must research the laws and rules for sales and use tax and review current exemption forms.

Hawaii

Hawaii does not have a sales tax, but it does have an excise tax which applies to nearly every conceivable type of transaction (including services), and is technically charged to the business rather than the consumer. Unlike other states, businesses may or may not show the tax separately on the receipt, as it is technically part of the selling price. 4.0% is charged at retail with an additional 0.5% surcharge in the City and County of Honolulu (for a total of 4.5% on Oahu sales), and 0.5% is charged on wholesale However the state also allows "tax on tax" to be charged, which effectively means a customer is billed 4.166% (4.712% on Oahu). The exact dollar or percentage amount to be added must be quoted to customers within or along with the price. The 0.5% surcharge on Oahu was implemented to fund the new rail transport system. The use of an excise tax means that tax-exempt non-profit organizations must pay the tax, unlike states where they are exempt from sales taxes. hi

Idaho

Idaho has a 6.0% state sales tax. Some localities levy an additional local sales tax.

Illinois

Illinois sales and use tax scheme includes four major divisions. Retailer's Occupation Tax, Use Tax, Service Occupation Tax and the Service Use Tax. Each of these taxes is administered by the Illinois Department of Revenue. The Retailer's Occupation Tax (commonly referred to as a "sales tax") is imposed upon the privilege of engaging in the occupation of being a retailer and is measured by the gross receipts of the retailer. The base rate of 6.25% is broken down as follows: 5% State, 1% City, 0.25% County. A complementary Use Tax is imposed at the same 6.25% rate. The Use Tax is imposed upon the privilege of using or consuming property purchased at retail from a retailer upon which no Retailer's Occupation Tax was paid. The Service Occupation Tax is imposed upon the privilege of engaging in service businesses and is measured by the selling price of tangible personal property transferred as an incident to providing a service. The Service Use Tax is imposed upon the privilege of using or consuming tangible personal property transferred as an incident to the provision of a service. An example would be a printer of business cards. The printer owes Service Occupation Tax on the value of the paper and ink transferred to the customer in the form of printed business cards. The serviceperson may satisfy this tax by paying Use Tax to his supplier of paper and ink or, alternatively, may charge Service Use Tax to the purchaser of the business cards and remit the amount collected as Service Occupation Tax on the servicepersons tax return. The service itself, however, is not subject to tax.

A vast array of additional local taxes are also imposed. Local taxes include Home Rule Municipal Retailer's Occupation Tax, Home Rule County Retailer's Occupation Tax, Chicago Home Rule Use Tax (Chicago is the only city in Illinois authorized to impose a use tax), and various water, motor fuel, transportation and park district taxes. The combined tax rate in Illinois therefore varies from the State minimum of 6.25% to a current high of 10.25% in Cook County..

Grocery, drugs, and medical appliances have sales tax of 1% plus local home rule tax depending on the location where purchased. Newspapers and magazines are exempt from sales tax. Illinois' system is exceptionally complicated, and is detailed on their website.

The city of Chicago has the highest total sales tax of all major U.S. cities. It is also one of the most complex. 10.25% is levied on all non-perishable goods purchased, while 2% is levied on grocery items, drugs, and medical appliances. There is an additional 1% tax, the Metropolitan Pier and Exposition Authority (MPEA) "Food and Beverage Tax", on food and beverage purchases in the downtown area (These "downtown" boundaries are: Surf Street on the north, Ashland Avenue on the west, Stevenson Expressway (I-55) on the south, & Lake Michigan on the east. Furthermore, O'Hare and Midway airports also fall under the 1% MPEA tax district). Car rentals in the city are taxed at 20%. Hotel rooms are taxed at 15.4%. Soft drinks (packs, cases, or individual bottles) are taxed at 13.25%.

In October 2007, a 10 cent per-bottle tax was proposed for bottled water as a potential source of additional revenue to help balance government budget deficits. The proposal was recently reduced to only a 5 cent per-bottle tax. Also, new alcohol tax increases in Chicago are being debated, such as a 7 cent tax increase on six-pack of beer, a 6 cent increase on a bottle of wine depending on alcohol content, and 22 cents on a liter of spirits.

Indiana

Indiana has an 7% state sales tax. The tax rate was raised from 6% on April 1, 2008, to offset the loss of revenue from the statewide property tax reform, which is expected to significantly lower property taxes. Untaxed retail items include medications, water, ice and unprepared, raw staple foods or fruit juices. Many localities, inclusive of either counties or cities, in the state of Indiana also have a sales tax on restaurant food and beverages consumed in the restaurant or purchased to go. Revenues are usually used for economic development and tourism projects. This additional tax rate may be 1% or 2% or other amounts depending on the county in which the business is located. For example, in Marion County, Indiana, the sales tax for restaurants is 9%.

Iowa

As of July 1, 2008, Iowa has a 6% state sales tax. Some cities, and the unincorporated areas of some counties, impose local option sales taxes of up to 1% each, bringing the total to as much as 7%. There is no tax on most unprepared food. The Iowa Department of Revenue provides information about local option sales taxes, including sales tax rate lookup.

Kansas

Kansas has a 5.3% state sales tax. More than 700 jurisdictions within the state (cities, counties, and special districts) may impose additional taxes. For example, in the capital city of Topeka, retailers must collect 5.3% for the state, 1.15% for Shawnee County, and 1% for the city, for a total rate of 7.45%. As of February 2007, the highest rate was 8.65%, in the Roeland Park Transportation District.

Kentucky

Kentucky has a 6% state sales tax. Alcohol and most staple grocery foods are exempt.

Louisiana

Louisiana has a 4% state sales tax: 3.97% to sales tax and .03% to Louisiana tourism district. There are also taxes on the parish (county) level and some on the city levels. Louisiana also bids out sales tax audits to private companies, with many being paid on a percentage collected basis.

Maine

Maine has a 5% general, service provider and use tax. The tax on lodging and prepared food is 7% and short term auto rental is 10%. These are all generally known as "sales tax".

Maryland

Maryland has a 6% state sales and use tax as of January 3, 2008 with exceptions for medicine, residential energy, and most non-prepared foods. Currently, many services (e.g., auto repair labor, haircuts, accounting) are not taxed.

Certain computer services were to be subject to sales tax and use tax effective July 1, 2008 after being approved without public hearing during the 2007 Special Legislative Session. However, after effective lobbying by computer services professionals, the tax was repealed April 6th during the final days of the General Assembly. Following declining approval ratings and intense public pressure, Governor Martin O'Malley relented and authorized the repeal.

Massachusetts

Massachusetts has a 5% sales tax, replete with numerous exceptions including (among other things): "food products" (but excluding prepared meals); residential water, gas, electric services; returnable containers, clothing and footwear up to $175 (for clothing over $175, tax is due only on the amount over $175 per item); prescription medicines, prostheses and medical appliances or services; publications for use in education or religious worship; poultry and livestock, as well as their feed; fruit and vegetable stock for generating food for humans; tools, machinery, parts, etc., for use in agriculture; cloth or other materials used for making clothing; residential heat pump, solar or wind power system; items purchasable with federal food stamps; the American Flag; etc. A recently enacted change (2006) now taxes computer software that is downloaded for use in Massachusetts, whereas previously this was viewed as a non-taxed "service".

Once a year since 2004, the State Government has enacted one-time tax holidays suspending the sales tax on many purchases for 1-2 days in August. Motor vehicles, motorboats, meals, telecommunications services, gas, steam, electricity, tobacco products, and any single item whose price exceeds $2,500 were excluded from the holiday. In 2008, the days were August 16-17.

Michigan

Michigan has a 6% sales tax. Michigan has a use tax of 6%, which is a tax that is applied to items brought into Michigan but not bought there, and on rentals in some situations, and is supposed to be paid when filing income tax. A service tax was approved in September 2007, effective December 1st, 2007, allowing certain services to be taxed. The services tax was repealed the same day it went into effect. There is no local sales tax in Michigan. Food, periodicals, and prescription drugs are not taxed. Restaurants, however, do have a tax, but the tax is for the service and not on the food. Michigan also has recently introduced a business tax called the Michigan Business Tax (MBT) which replaces the Single Business Tax (SBT).

Minnesota

Minnesota has a 6.50% state sales tax. As of July 1, 2008, an additional 0.25% Transit Improvement tax was phased in across five counties in the Minneapolis-St. Paul metropolitan area for transit development. These counties include Hennepin, Ramsey, Anoka, Dakota, Washington. The Transit Improvement tax brings taxes in these counties to 6.75%. Saint Paul imposes an additional 0.5% tax, bringing the total to 7.25%. An additional 0.15% is imposed in Hennepin County to finance a new Minnesota Twins stadium, in addition to 0.5% imposed in Minneapolis, bringing the total rate in the city of Minneapolis to 7.4% and 6.9% in the rest of Hennepin County. Food (not including prepared food, some beverages such as soda pop, and other items such as candy) and clothing are exempt from the sales tax. Municipalities may be allowed by the state legislature to institute local option taxes. Rochester imposes a 0.5% for a total of 7.0 sales tax. Current local option taxes include a "lodging" tax in Duluth (3%), Minneapolis (3%), and Rochester (4%), as well as served "food and beverage" tax in Duluth (2.25%). An additional 1% sales tax is imposed in Duluth, bringing the total to 7.5%. Alcohol has a 9% sales tax statewide (6.5% sales tax, plus 2.5% gross receipts tax) not including any applicable local taxes. In addition to the local 1% sales tax added to Duluth sales, Duluth imposes an additional 2.25% tax on all food, beverage and alcohol sales at restaurants.

Mississippi

Mississippi has a 7% state sales tax. Cities and towns may implement an additional tourism tax on restaurant and hotel sales. The city of Tupelo has a 0.25% tax in addition to other taxes. Restaurant and fast food tax is 9%. The city of Hattiesburg also has a 9% sales tax on Restaurant and fast food tax.

Missouri

Missouri has a 4.225% state sales & use tax rate. The state sales tax rate on certain foods is 1.225%. Counties, cities, and special taxing districts may impose additional sales & use taxes.

Transportation Development Districts and Museum Districts may impose sales tax (but not use tax) up to 1%, in addition to all other sales taxes. However, the Missouri Department of Revenue does not administer sales tax for these districts, nor does it publish their sales tax rates. As of August 2007, there is no public, comprehensive and complete list of these districts, their locations, and the sales tax rates they impose.

Montana

Montana does not have a state sales tax but some municipalities which are big tourist destinations, such as Whitefish, Red Lodge, Big Sky, and West Yellowstone, have a small sales tax (0.25%).

Nebraska

Nebraska has a 5.5% state sales tax. Municipalities have the option of imposing an additional sales tax of up to 1.5%. Specific tax rates per counties are available on the web.

Nevada

Nevada's state sales tax is 6.5%. Counties may impose additional rates via voter approval or through approval of the Legislature; therefore, the applicable sales tax varies by county from 6.5 percent to 7.75 percent (in Clark County), as of October 12007. Clark County, which includes Las Vegas, imposes four separate county option taxes in addition to the statewide rate - 0.25 percent for flood control, 0.50 percent for mass transit, 0.25 to fund the Southern Nevada Water Authority, and 0.25 percent for the addition of police officers in that county. In Washoe County (which includes Reno), the sales tax rate is 7.375 percent, due to county option rates for flood control, the ReTRAC train trench project, mass transit, and an additional county rate approved under the Local Government Tax Act of 1991.

For travelers to Las Vegas, note that the lodging tax rate in unincorporated Clark County, which includes the Las Vegas Strip, is 9%. Within the boundaries of the City of Las Vegas, the lodging tax rate is 11%.

New Hampshire

New Hampshire is one of only five states that do not impose any form of general sales tax on the sale or use of tangible personal property within the state. New Hampshire does, however, levy a tax on meals, room occupancies, motor vehicle rentals, cigarettes, beer, wine, gasoline, and use of electricity (55 cents per megawatt-hour) and phone services (7 percent). A transfer tax is levied on real estate sales, currently 0.15 percent.

In New Hampshire, any food or beverage that is prepared and served by a "restaurant," whether served for consumption on or off the restaurant premises, is considered to be a meal. Excluded from the tax is any food and beverage that is wholly packaged off the premises and sold in the original package, such as chips, candy, soda or fruit beverages in sealed containers, and frozen novelties. Catered or delivered meals or party platters are taxable, as are charges for any service or items related to preparing or serving the food (plates, ovens, etc). Restaurants include most places where you can buy any food. There are several other exceptions. For example, meals served or furnished on the premises of a religious or charitable nonprofit organization are not taxable, nor are bakery products sold in quantity of 6 or more servings, or a whole pie, cake, or loaf of bread with multiple servings.

The New Hampshire meals and rooms tax rate is 8% on any amount over 35 cents (including any alcohol). The rooms tax is imposed on any occupancy in a hotel, house, apartment, dormitory, camp, cottage or any similar establishment offering sleeping accommodations in the State of New Hampshire, for any rental less than 185 days, not including bare campsites without shelter. The tax rate is currently 8% of the rent for each occupancy. A motor vehicle rental tax is imposed under the meals and room tax classification at a rate of 8% on the gross rental receipts of each rental, but not including separately itemized fuel, insurance or damage charges.

Gasoline tax is 20.6¢ per gallon. Cigarettes: $1.08 per pack. Beer: 30¢ per gallon.

See also tax-free shopping.

New Jersey

New Jersey has a 3.5% state sales tax, but every municipality in New Jersey also charges an additional 3.5% sales tax, resulting in a total tax rate of 7% throughout the state, with the exception of "Urban Enterprise Zones". In Urban Enterprise Zones, the State waives its 3.5% tax to encourage economic development, resulting in an effective tax rate of 3.5%. A full list of Urban Enterprise Zones is available on the State of New Jersey Web site.

New Jersey does not charge sales tax on unprepared food, household paper products, medicine, and clothing.

New Jersey does not charge sales tax on gasoline, but gasoline is subject to a $0.145/gallon excise tax.

Sales of clothing and accessories that are made of fur from the hide or pelt of an animal that is valued at $500 or more are subject to a 6% Fur Clothing Gross Receipts Tax.

New Mexico

New Mexico does not technically have a sales tax, but it has a 5% statewide gross receipts tax which is applied on typically everything including sales of goods and services, but not sales of food for offsite consumption.

The state does not prohibit retailers from collecting this tax directly from the consumer, so the gross receipts tax is commonly just passed on from the retailer to the consumer as if it were a sales tax.

New York

New York has a 4% state sales tax. All counties and some cities add local taxes ranging from 3% to 4.75%. The combined sales tax in Utica, New York, for example, is 8.75%. In New York City, total sales tax is 8.375%, which includes 0.375% charged for the service of the Metropolitan Transportation Authority (New York).

There is no New York City sales tax imposed on the purchase of clothing and footwear regardless of the amount. As of September 1, 2007, New York State has eliminated sales tax on all clothing and shoes if the single item is priced under $110. Most counties and cities have not eliminated their local sales taxes on clothing and shoes. There are however, 11 counties and 5 cities (most notably New York City, New York, Queens, Kings, Richmond, and Bronx, which make up New York City are not counted)) that have done so. The counties where the year-round exemption will apply include: Chautauqua, Chenango, Columbia, Delaware, Dutchess, Greene, Hamilton, Madison (outside the City of Oneida), Rensselaer, Tioga, Broome, and Wayne. The cities where the year-round exemption will apply include: Gloversville, New York City, Norwich, Olean, Binghamton, and Sherrill.

As of June 1, 2008, when products are purchased online and shipped within New York State, the retailer must charge the tax amount appropriate to the locality where the goods are shipped, and in addition, must also charge the appropriate tax on the cost of shipping and handling.

North Carolina

North Carolina has a state-levied sales tax of 4.25%, effective July 1, 2007, with most counties adding an additional 2.5% tax, for a total tax of 6.75%. Mecklenburg County levies an additional 0.5% tax, which is directed towards funding the light rail system, for a total of 7.25%. Although the state sales tax rate was slated to decrease to 4% on July 1, 2007, the General Assembly voted to permanently adopt the higher tax rate due to ongoing budget problems.

Before December 1, 2006, the combined total rate in most counties was 7%. In addition, there is a 30.2¢ tax per gallon on gas, a 35¢ tax per pack of cigarettes, a 79¢ tax per gallon on wine, and a 53¢ tax per gallon on beer. Most non-prepared food purchases are taxed at a reduced rate of 2%. Candy, soft drinks, and prepared foods are taxed at the full combined 6.75% rate, with some counties levying an additional 1% tax on prepared foods. In order to benefit back-to-school shoppers, there is a sales tax holiday that exempts certain items of tangible personal property sold between the first Friday in August and the following Sunday.

North Dakota

North Dakota has a 5% state sales tax for general sales. Sales Tax in North Dakota varies depending on the category. (5%, 7%, 3% and 2%)

Ohio

Ohio has a 5.5% state sales tax. Counties may levy a permissive sales tax of from 1/4% up to 2.5% and transit authorities, mass transit districts usually centered on one primary county, may levy a sales tax of from 1/4% up to 2.5%. Cuyahoga county has the highest sales tax of 7.75%. Tax increments may not be less than 1/4%, and the total tax rate, including the state rate, may not exceed 8.5%. County permissive taxes may be levied by emergency resolution of the county boards of commissioners. Transit authority taxes must and county permissive taxes may be levied by a vote of the electors of the district or county. Shipping and handling charges are considered part of the retail price and are also taxable. Ohio also has a gross receipts tax called the Commercial Activity Tax (CAT) that is applicable only to businesses but shares some similarities to a sales tax.

Oklahoma

Oklahoma has a 4.5% sales tax rate. Cities have an additional sales tax which varies, but is generally 3-4% resulting in a total sales tax rate of 7.5% to 8.5%.

Oregon

Oregon has no statewide sales tax, although local municipalities may impose sales taxes if they so choose. The city of Ashland, for example, charges a 5% sales tax on prepared food. Several Oregon communities assess sales taxes on lodging.

Pennsylvania

Pennsylvania has a 6% sales tax rate. Allegheny County and Philadelphia County have an additional 1% sales tax.

Food, most clothing, and footwear are among the items most frequently exempted. However, taxed food items include soft drinks and powdered mixes, sports drinks, hot beverages, hot prepared foods, sandwiches, and salad bar meals, unless these items are purchased with food stamps. Additionally, catering and delivery fees are taxed if the food itself is taxed.

Additional exemptions include internet service, newspapers, textbooks, disposable diapers, feminine hygiene products, toilet paper, wet wipes, prescription drugs, many over-the-counter drugs and supplies, oral hygiene items (including toothbrushes and toothpaste), contact lenses and eyeglasses, health club and tanning booth fees, burial items (like coffins, urns, and headstones), personal protective equipment for production personnel, work uniforms, veterinary services, pet medications, fuel for residential use (including coal, firewood, fuel oil, natural gas, steam, and electricity), many farming supplies and equipment, and ice.

Puerto Rico

Puerto Rico has a 5.5% commonwealth sales tax that applies to both products and services with few exemptions (including items such as unprocessed foods, prescription medicines and business-to-business services). Additionally, most municipalities have a city sales tax of 1.5% for a total of 7%. Some items that are exempt from commonwealth state tax, specifically unprocessed foods, may still be subject to the city sales tax in the municipalities.

Rhode Island

Rhode Island has a state sales tax of 7%. The rate was raised from 1% to 6% as a temporary measure in the 1970s, but has not since been lowered.

Rhode Island raised its sales tax from 6% to 7% in the early 1990s to pay for the bailout of the state's failed credit unions. The change was initially proposed as a temporary measure, but was later made permanent.

Other taxes may also apply, such as the state's 1% restaurant tax.

Many items are exempt from the state sales tax, e.g., food, prescription drugs, clothing and footwear, newspapers, coffins, and original artwork.

South Carolina

South Carolina has a 6% state sales tax, as of June 1, 2007 (7% for accommodations), but counties and some cities may impose an additional 1% or 2% sales tax. As of mid-2005, 35 of 46 counties do so. Restaurants may also charge an extra 1-2% tax on prepared food (fast food or take-out) in some places. The state's sales tax on unprepared food disappeared completely November 1, 2007. There is a cap of $300 on sales tax for most vehicles.

Additionally, signs posted in many places of business inform that South Carolina residents over the age of 85 are entitled to a 1% reduction in sales tax.

South Dakota

South Dakota has a 4% state sales tax, plus any additional local taxes. An additional 1% sales tax is added during the summer season on sales occurring in tourism-related businesses and dedicated to the state's office of tourism.

Tennessee

Tennessee charges 5.5% sales tax on groceries as of January 1, 2008, and 7% on other items. Counties also tax up to 2.75% in increments of 0.25% — most do so around 2.25%. If a county does not charge the maximum, its cities can charge and keep all or part of the remainder. Several cities are in more than one county, but none charge a city tax, thus paying only the county taxes.

Texas

The Texas state sales and use tax rate is 6.25%, but local taxing jurisdictions (cities, counties, special purpose districts, and transit authorities) may also impose sales and use taxes up to 2% for a total of 8.25%. Medicine, produce, eggs, meats, bakery products, and others are exempt from tax. In May 2006, Texas imposed a 1% tax on the gross receipts of businesses (retailers pay a .5 percent rate), but exempts sole proprietorships and general partnerships.

Utah

Utah has a 4.75% state sales tax. Additionally, local taxing authorities can impose their own sales tax. Currently the majority of Utah's aggregate sales taxes are in the range of 5.5% - 7.0%.

Vermont

Vermont has a 6% state sales tax and a rooms, meals and alcohol tax of 10%. Purchases of clothing (under $100), food and footwear are not taxed. The City of Rutland adds 1% local sales tax on rooms, meals and alcohol. The towns of Williston, Manchester, Burlington and Stratton add a 1% local optional sales tax.

Virginia

Virginia has a general sales tax rate of 5% (4% state tax and 1% local tax). Eligible food items are taxed 2.5% (1.5% state tax and 1% local tax). Cities and counties may also charge an additional "Food and Beverage Tax" on restaurant meals.

Virginia's use tax also applies at the same rate for out of state purchases (food 2.5%, non-food 5%)exceeding $100 per year. Various exemptions include prescription and non-prescription medicine, gasoline [need citation, but was told not to report gas purchases], and postage stamps, or the labor portion of vehicle repair (parts portion only, citation needed). "Cost price" does not include separately stated shipping or delivery charges but it does include a "shipping and handling" charge if listed as a combined item on the sales invoice. However, unlike Maryland and West Virginia consumer use tax forms, the Virginia CU-7 Consumer Use Tax Form does not recognize that it is possible to be under-taxed in another state and so only addresses untaxed items only. Unlike Maryland's quarterly filing, Virginia's CU-7 is due annually between January 1 and May 1 or can be filed optionally instead with Schedule ADJ with Form 760, or Schedule NPY with Form 760PY. As with all states, Virginia has penalties and interest for non-filing, but Virginia's use tax is no more practically enforceable than that of any other state.

Washington

Washington has a 6.5% statewide sales tax. As of October 31, 2007, sales tax is not applied on most food items and prescription medications (not including over-the-counter medications). Individual counties, municipalities and regional transit authorities are entitled to collect a sales tax, which vary from 0.5% to 2.5%. Within King County, the King County Food & Beverage (KCF&B) tax adds an additional .5% to food and beverages purchased in bars, taverns and restaurants resulting in an effective tax rate of 9.5% (9.0% on all other items). Additionally, the sale or lease of motor vehicles for use on the road incur an additional 0.3% tax, rental of a car for less than 30 days has an additional state/local tax of 8.9%. When renting a car for less than 30 days in Seattle, the total sales tax is 18.6%. When purchasing an automobile, if you trade in a car, the state subtracts the price of the trade when calculating the sales tax to be paid on the automobile (e.g., purchasing a $40,000 car and trading a $20,000 car, you would be taxed on the difference of $20,000 only, not the full amount of the new vehicle).

When staying at hotel (60+ rooms capacity) in Seattle, the sales tax is 15.6%. Residents of Canada and US states or possessions (only US and Canadian locations having a sales tax of less than 3%, e.g., Oregon, Alaska & Alberta) are exempt from sales tax on purchases of tangible personal property for use outside the state. Stores at the border will inquire about residency and exempt qualified purchasers from the tax. Washington also has a Gross receipts tax called the Business and Occupations Tax (B&O).

Also, the seller of a house pays excise taxes on the full sale price. The amount of the varies by county. In King and Snohomish counties, it is up to 1.78%. For example, selling a house for $500K will cost you $8900 in taxes.

Residents of Washington are also obligated to pay a sales and use tax, which is incurred when a resident makes a purchase in another state and uses it within state lines, regardless of whether or not sales tax was paid in another state. This tax is based on an honor system for its residents and is seldom, if ever, paid.

The lowest combined sales tax (statewide and municipality) in Washington is 7.0% in most of Klickitat and Skamania Counties, while the highest combined sales tax in Washington is the aforementioned 9.5% tax on prepared food and beverages in King County.

April 1, 2008 saw tax increases in King County (+.001), Kittitas County (+.003), Mason County (+.001), and the city of Union Gap (+.002), which makes King County's prepared food and beverages tax 9.501%.

On July 1, 2008, Washington stopped charging an origin-based sales tax, and started charging a destination-based sales tax. This change only applies to transactions beginning and ending within state lines and does not apply to other states. Additionally, Washington started collecting taxes from online retailers that have voluntarily agreed to start collecting the sales tax in return for not being sued for back taxes.

The city of Seattle charges a 7.5% tax on charges for parking garages to go toward mass transit.

West Virginia

West Virginia has the distinction of being the first US state to enact a sales tax. It currently stands at 6%. The sales tax on food currently stands at 3%. Effective January 1, 2006, the sales tax on food was lowered to 5%, and on July 1, 2007, it was lowered further to 4%. The sales tax on food was again lowered to 3% on July 1, 2008. However, the reduced rate of tax does not apply to sales, purchases and uses by consumers of prepared food. Prescription drugs are not subject to sales tax. Credit is allowed for sales or use taxes paid to another state with respect to the purchase.

An individual who titles a motor vehicle with the West Virginia Division of Motor Vehicles must pay a $5.00 title fee and a 5 percent title privilege tax (rather than the 6 percent sales tax). For vehicles purchased new by West Virginia residents, the measure of this tax is the net sales price of the vehicle. For used vehicles, and for vehicles previously titled in other states, the tax is measured by the National Automobile Dealers Association book value of the vehicle at the time of registration. No credit is issued for any taxes paid to another state. Trailers, motorboats, all-terrain vehicles and snowmobiles are also subject to this tax. As of June 7, 2007, new residents of West Virginia no longer have to pay the 5 percent title privilege tax on vehicles, as long as the vehicles were validly titled to the same owner outside the state.

Wisconsin

Wisconsin has a 5% state sales tax, with most of the 72 counties charging an extra 0.5% "County Tax". Five counties (Milwaukee, Ozaukee, Racine, Washington, Waukesha) have a 0.1% tax that funds the building of Miller Park in Milwaukee. Brown County (Green Bay) has a 0.5% tax for the reconstruction of Lambeau Field. Prescriptions, most non-prepared foods (including meat and dairy) are exempt; however over-the-counter medications are not.

Wyoming

Wyoming has a 4% state sales tax, with counties adding an additional 0% to 2%, resulting in a maximum rate of 6%. In addition, resort district areas have the option to impose an additional 1% tax. Food for domestic home consumption is exempt from sales tax.

State by state taxes

State Tax Groceries Prepared Food Prescription Drug Non-prescription Drug Clothing
Alabama

4%
Alaska
Arizona

5.6%
Arkansas

6%

3%
California

7.25%
Delaware
Indiana

7%
Iowa

6%
New Jersey

7%
Montana
New Hampshire
Ohio

5.5%
Oregon
Pennsylvania

6%
Washington

6.5%
West Virginia

6%

3%

Color Explanation

Indicates exempt from tax

Indicates subject to general sales tax rate

Indicates it does not have sales tax

(1) Some states tax food, but allow an (income) tax credit to compensate poor households. They are: HI, ID, KS, OK, SD, and WY. (2) Includes statewide local tax of 1.0% in California and 1.0% in Virginia. (3) Tax rate may be adjusted annually according to a formula based on balances in the unappropriated general fund and the school foundation fund. (4) Food sales are subject to local sales taxes. (5) Sales tax rate is scheduled to decrease to 4% on 7/1/2007. (6) Sales tax rate is scheduled to increase to 6% on 6/1/2007. (7) Food sales exempt through 6/30/2008.

Sales tax planning

In the United States, corporate sales tax planning may include the following:

  • Determination of ways to legally reduce the amount of tax due on a transaction. For instance, how a company structures its invoices can affect the taxability of the entire transaction. Each U.S. state has different rules for applying sales tax. Some states laws are more advantageous to taxpayer for certain types of transactions. If a business operates in several states, choosing the best state to take delivery in can reduce or eliminate sales tax liability. In many states an item can become taxable if not separately stated on the invoice.
  • Review of company purchases to determine which assets may qualify for exemptions. Finding overlooked exemptions often results in significant savings.
  • Periodic review of procedures relating to Sales & Use Tax data gathering and retention so that proper supporting documentation, including exemption and resale certificates, are available in the event of a State audit.

See also

References

External links

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