Breaking Sales Tax Rates Down by Jurisdiction
- Sales Tax
- Jun 11, 2015 | Laura McCamy
If you operate a single location, brick and mortar retail business, your sales tax filings are probably pretty straightforward: You will probably charge the same tax rate on all your sales because you are selling from one physical location.
If you add an online store or take your wares to a street fair or an event in another location, understanding what tax rate to charge can get complicated fast. Many states have tax rates that change from county to county. Some counties have more than one rate, as cities tack on local sales taxes. Figuring out the correct amount of sales tax to charge on each purchase can be enough to make your head spin!
Luckily, Avalara TrustFile can automatically break down the sales tax you collected by jurisdiction and generate a free sales tax report that makes filing sales tax returns faster and easier. Another option is the Avalara tax rates calculator. Let's take a look at how a business owner can use it to break down sales tax by jurisdiction.
Charging your customers the wrong sales tax rate can be a costly mistake, since the difference will come out of your profits. Sales tax rates can vary widely, even within the same state. In Alabama, for example, the sales tax rate ranges from four to ten percent, depending on the city and county where the sale is transacted. That’s a difference of $6.00 for every $100.00 in sales, which can add up fast.
One State, One Tax Rate
Some states make it easy with a single, statewide rate. For example, if you have a retail business selling in Michigan, you will owe the State of Michigan six percent sales tax, period. Whether you made the sale in Ann Arbor or Grand Rapids or Detroit, you need to collect $3.00 in sales tax on a $50.00 sale.
In neighboring Indiana, the rate is seven percent everywhere in the state, or $3.50 in sales tax on that $50.00 purchase. Other states with one statewide sales tax rate include Hawaii, Idaho, Nebraska, Kentucky, Mississippi, West Virginia, Pennsylvania, Maryland, New Jersey, Connecticut, Massachusetts, and Maine.
A Patchwork Quilt of Sales Tax Rates
If, however, you step across the border from Michigan into Ohio, sales tax rates change depending on what county you’re in. Like the majority of the states in the US, Ohio allows each county to levy an additional tax on top of the state sales tax. When you sell in Toledo, the sales tax is 7.25 percent: Ohio’s 5.75 percent statewide tax plus a county tax of 1.5 percent. In Sandusky, the rate is 6.75 percent; in Cleveland, it’s eight percent. In Toledo, the tax on a $50.00 retail sale is $3.62; in Sandusky, $3.38, and in Cleveland, $4.00.
Heading west to Illinois, the sales tax landscape gets even more complex, with city sales taxes in some locations as well as add-ons that fund public projects. Chicago’s 9.25 percent sales tax includes taxes levied by the city, the county, and the regional transportation authority. Your sales tax on that $50.00 purchase would be $4.63. Travel south to rural Kankakee County and the rate goes down to 6.25 percent, or $3.13 sales tax on a $50.00 sale.
Tax the Destination or the Origin?
Selling online adds another wrinkle to your sales tax collection. If you are based in Florida and ship to a customer in Florida, your sales tax rate will be based on where your customer lives because Florida bases sales taxes on the destination of goods shipped to customers. If your business is located in Texas, your tax rate for orders shipped to Texas addresses is based on your location, because Texas sales taxes are based on the origin of the package.
If you operate a business in California and ship to customers in California, you will pay some portions of your sales taxes (city and county taxes) based on the origin address and others (district taxes) based on the location of your customer.
Whew! That’s a lot to take in. If you sell across many jurisdictions, even within a single state, you may find a service such as Avalara Trustfile can make sales taxes less ... well, taxing.