- Last Updated
- July 24, 2024
Sales tax is a complex topic, for both businesses and consumers. To help, we’re answering some common questions about sales tax, including:
- What is sales tax?
- How does sales tax work when purchasing online?
- What items are subject to sales tax?
Sales tax, explained
Sales tax is a type of indirect tax. Indirect taxes are applied to retail sales of certain tangible personal property and services, paid by the consumer, and remitted to the appropriate tax authority by the business.
Sales tax is governed at the state level, which means each state gets to make its own rules and laws when it comes to administering sales tax. This is part of the reason sales tax compliance is so complex. For a business selling in multiple states, they must be aware of all the different sales tax laws and keep up with when sales tax is due in each state. Forty-six US states and Washington D.C. all have a state sales tax.
What is sales tax used for?
States and local governments use sales tax to pay for items like schools, roads and public safety.
How is sales tax calculated?
Sales tax is a percentage of the sale price of an item that is then added on to the total price of the item.
To calculate sales tax, use this formula:
Total item price x 1 + sales tax rate = total sales tax
For example, let’s say you are buying an item priced at $10.00 and the sales tax rate is 6%.
$10 total item price x 1.06 = $10.60
Sales tax rates can vary from state to state and even within counties or cities. If you need to look up a sales tax rate, check out TaxJar’s sales tax calculator.
Which items are taxable?
While this varies per state, most tangible products are taxable. Services, SaaS, and grocery items are often taxable as well, but this depends on the state.
If you’re wondering which products and services are taxable in your state, we recommend reading our in-depth state sales tax guides.
Who collects sales tax?
When you make a purchase, you pay sales tax to the retailer. The retailer collects the sales tax and remits it to the appropriate state tax authority.
How does sales tax work for e-commerce purchases?
In the majority of scenarios, an e-commerce seller will charge the sales tax rate at the customer’s location. This is a concept called sales tax sourcing. Learn more about sales tax sourcing on our blog.
Is shipping taxable?
In some states, the amount of money the retailer charges you for shipping is taxable. In other states, shipping charges are not taxable. See where shipping is considered taxable here.
Why do you sometimes pay no sales tax when shopping online?
You are charged sales tax based on whether or not the seller is required to collect sales tax from buyers in your state.
E-commerce sellers with “sales tax nexus” in your state are legally required to collect sales tax from you.
Businesses can have nexus for a number of reasons, including:
- A location in your state
- An employee in your state
- A salesperson, contractor or other personnel in your state
- A warehouse or inventory stored in your state
- Making temporary sales in your state, such as at a tradeshow
- Economic nexus – Making a certain amount of sales in a state (either a certain dollar amount or a certain number of transactions)
When are sales tax holidays?
Sales tax holidays are put in place to encourage consumer spending by temporarily eliminating sales tax on certain retail purchases. Additionally, many states have sales tax holidays for emergency preparedness items or back to school shopping, to provide an economic reprieve for consumers on these necessities. Find a list of 2024 sales tax holidays here.
Sales tax resources
If you still have a question about sales tax, start by contacting your state’s taxing authority. The TaxJar blog is also a great resource for sales tax information.
If you are an e-commerce seller who needs help collecting, reporting and filing sales tax, try a 30-day free trial of TaxJar.