What is sales tax?
Sales tax is an indirect tax added to the sale of certain goods and services in the U.S.
The customer pays it, but the business is responsible for collecting it and sending it to the appropriate government agency.
Who collects it, and why?
Businesses collect sales tax at the time of purchase. Then, they remit (send) it to the state or local government by a set deadline.
Sales tax helps fund public services like schools, roads, and safety programs.
Is sales tax the same in every state?
No. Sales tax is regulated at the state level, and rules vary widely.
Some states call it:
Transaction privilege tax
General excise tax
But the purpose is the same: tax certain sales and services.
What is an economic nexus?
You’re required to collect sales tax when your business meets certain economic thresholds in a state.
This is called economic nexus.
Thresholds are usually based on:
Revenue (e.g., $100,000 in sales)
Number of transactions (e.g., 200 sales in a state)
Some states require both to be met. Others only require one.
For example:
Georgia – You must collect sales tax if you exceed $100,000 in revenue or 200 transactions in the state.
What’s the sales tax rate?
Most states have:
A statewide sales tax rate
Additional local rates at the county, city, or district level
There are over 11,000 tax jurisdictions in the U.S., each with its own rate.
Typical state tax rates range between 4% and 11%.
No statewide sales tax?
These five states don’t have a state sales tax:
Alaska
Delaware
Montana
New Hampshire
Oregon
(But local sales tax may still apply in some areas.)
How do I know what rate to charge?
Most states use destination-based sourcing.
This means you charge the sales tax rate based on your buyer’s location, not where your business is.
For example:
If you're based in Texas but ship to a customer in New York, you charge New York sales tax.