What is sales tax?
“Sales tax” is a tax on the sales price of goods and services sold at retail. While the the consumer pays it, the seller must calculate, collect, file, and remit the tax to state and local authorities.
Forty-five states, the District of Columbia, and Puerto Rico impose some form of general sales tax on the sale of goods and services. Alaska, Delaware, Montana, New Hampshire, and Oregon do not have a general sales or use tax; however, they often allow local taxes and/or similar taxes on specific services, such as lodging and telecommunication services. Other names for sales tax include transaction privilege tax, gross receipts tax, general excise tax, retailer’s occupation tax, gross retail tax, and consumer sales tax.
There are more than 12,000 sales tax jurisdictions in the United States, and each is associated with a specific tax rate. Use the interactive map below to see the rates that matter to your business.
Tangible personal property (TPP) — items that can be moved, touched, or felt — is generally taxable in the United States unless specifically exempted by law or a valid exemption certificate. Services such as accounting, hair styling, or lawn care are generally exempt unless explicitly identified as taxable by statute; however, the retail sale of all services and goods is taxable unless specifically exempt in Hawaii, New Mexico, South Dakota, and West Virginia. Because the laws governing taxability can be redefined, businesses should be aware that changes do often occur.
How to find the right sales tax rates
A single ZIP code can have multiple sales tax rates; even neighboring houses in the same ZIP code can have different rates. For accurate sales tax calculations, sellers must use the rate that corresponds to the sales tax jurisdictions where a sale is sourced (more on this below). In addition, sales tax jurisdictions often overlap, so the right rate will be a combination of rates from all applicable state and local jurisdictions. There are over 12,000 tax jurisdictions in the U.S. alone.
Which address to use when calculating sales tax (sourcing)
Businesses should use the combined sales tax rate that corresponds to the location where the sale is sourced, or source, of a sale. States define the location of a sale differently. Most states use destination sourcing, meaning rates and taxability rules are based on the location where the buyer takes possession of the goods or services. But some, like Utah and Virginia, use origin sourcing, meaning the sale is sourced to the location of the seller (e.g., the point at which the order is placed or accepted, or the point from which the order is shipped). California and Texas take a hybrid approach, using elements of both destination and origin sourcing in different situations.