There are more than 12,000 tax jurisdictions in the U.S. alone, and many have their own unique set of rules when it comes to how products and services are taxed. As such, determining the taxability for products or services is one of the more intricate and time-consuming parts of tax compliance.
The complexity of accurate tax determination lies in knowing details about a product or service, such as its ingredients, how it’s sold, where it’s sold, how it’s delivered, and more. Nearly every state has a unique approach to defining the taxability of products. For example, in California, when a grocery store sells cold food items and individual hot drinks to go state sales tax does not apply, while vending machine sales of cold food products and hot drinks are taxable.
Ensuring products are accurately classified is critical to achieving tax compliance and makes certain businesses aren’t over- or undercharging taxes on transactions.
