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Sales taxes are imposed by state and local governments on the sale of goods and services. Depending on where your business is located, different goods and services may or may not be taxed. Some cities may not impose sales taxes on grocery items, for example. In general, whether the customer realizes it or not, most businesses must pay sales taxes on their gross receipts.

Sales taxes are imposed on the total amount of money a business takes in. No deductions are allowed for the cost of the goods or services to the business. If your business sells snacks through vending machines, the sales tax is imposed on the entire amount of money received from the vending machines. You do not get to deduct the amount you spent on the snacks that you put into the machines, the cost of owning and maintaining the machines, or any other business expenses. That is why sales taxes are also referred to as gross receipts taxes. They are a tax on the amount of gross receipts that your business takes in.

  1. 45 states collect statewide sales taxes.
  2. Sales tax rates differ by state, but sales tax bases also impact how much revenue is collected from a tax and how the tax affects the economy
  3. Differences in sales tax rates cause consumers to shop across borders or buy products online
The sales tax is imposed on retail transactions. It applies to all retail sales of tangible personal property, and in some states services, in the state. The use tax is imposed on consumers of tangible personal property that is used, consumed, or stored in this state. Consumer’s use tax applies to purchases from out-of-state vendors that are not required to collect tax on their sales. Sales and Use tax generally applies to most leases of tangible personal property. The sales tax and the use tax are "mutually exclusive", which means either sales tax or use tax applies to a single transaction, but not both.
You are responsible for collecting and remitting sales tax to a jurisdiction if you have established substantial presence in the state of delivery. This substantial presence is referred to as nexus.
Nexus, also known as sufficient physical presence, is the determining factor of whether an out-of-state business selling products into a state is liable for collecting sales or use tax on sales into the state. Nexus is required before a taxing jurisdiction can impose its taxes on an entity.

Nexus is created if your company maintains a temporary or permanent presence of people (employees, service people or independent sales/service agents) or property (inventory, offices, warehouses). The temporary presence is created through traveling people visiting states to call on customers or prospects, trade show attendance, or consigned inventory in warehouses.

Nexus is created once a substantial physical presence is established. Unfortunately, this is not clearly defined by each state and can vary from 1 day to a number of days in other states. The number of days that can create nexus can also vary based on the activity performed in the state. Nexus means a business entity has established a direct or representational presence within a particular state or jurisdiction. This presence gives the state the right to require a company to pay or collect and remit certain taxes.

Nexus determination is controlled by the U.S. Constitution under the Due Process Clause and the Commerce Clause. The Due Process Clause requires a definite link or minimum connection between the state and the person, property or transaction it seeks to tax. However, the Commerce Clause requires a higher level of connection. The Commerce Clause requires a substantial presence in a taxing state by the entity the state desires to tax.

State and Local Sales Tax Rates
State State Tax Rate Local Tax Rate (avg) Combined Rate

Alabama 4.00% 5.01% 9.01%
Alaska 0.00% 1.76% 1.76%
Arizona 5.60% 2.65% 8.25%
Arkansas 6.50% 2.80% 9.30%
California 7.25% 1.00% 8.25%
Colorado 2.90% 4.60% 7.50%
Connecticut 6.35% 0.00% 6.35%
Delaware 0.00% 0.00% 0.00%
Florida 6.00% 0.80% 6.80%
Georgia 4.00% 3.00% 7.00%
Hawaii 4.00% 0.35% 4.35%
Idaho 6.00% 0.03% 6.03%
Illinois 6.25% 2.39% 8.64%
Indiana 7.00% 0.00% 7.00%
Iowa 6.00% 0.80% 6.80%
Kansas 6.50% 2.12% 8.62%
Kentucky 6.00% 0.00% 6.00%
Louisiana 5.00% 4.98% 9.98%
Maine 5.50% 0.00% 5.50%
Maryland 6.00% 0.00% 6.00%
Massachusetts 6.25% 0.00% 6.25%
Michigan 6.00% 0.00% 6.00%
Minnesota 6.875% 0.42% 7.30%
Mississippi 7.00% 0.07% 7.07%
Missouri 4.225% 3.66% 7.89%
Montana 0.00% 0.00% 0.00%
Nebraska 5.50% 1.39% 6.89%
Nevada 6.85% 1.13% 7.98%
New Hampshire 0.00% 0.00% 0.00%
New Jersey 6.875% -0.03% 6.85%
New Mexico 5.125% 2.43% 7.55%
New York 4.00% 4.49% 8.49%
North Carolina 4.75% 2.15% 6.90%
North Dakota 5.00% 1.78% 6.78%
Ohio 5.75% 1.39% 7.14%
Oklahoma 4.50% 4.36% 8.86%
Oregon 0.00% 0.00% 0.00%
Pennsylvania 6.00% 0.34% 6.34%
Rhode Island 7.00% 0.00% 7.00%
South Carolina 6.00% 1.22% 7.22%
South Dakota 4.50% 1.89% 6.39%
Tennessee 7.00% 2.46% 9.46%
Texas 6.25% 1.94% 8.19%
Utah 5.95% 0.81% 6.76%
Vermont 6.00% 0.18% 6.18%
Virginia 5.30% 0.33% 5.63%
Washington 6.50% 2.42% 8.92%
West Virginia 6.00% 0.29% 6.29%
Wisconsin 5.00% 0.42% 5.42%
Wyoming 4.00% 1.40% 5.40%
D.C. 5.75% 0.00% 5.75%

For more information visit salestaxinstitute.com.

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