Sales and Use Tax
Purpose:
In the United States, there are state laws where consumers are required to pay a tax on goods and services purchased. This is what we call Sales and Use Tax.
NOTE: Tax rates below are subject to change.
Sales Tax
Sales tax is a tax imposed on the sale of goods and services. It is typically a percentage of the purchase price and is added to the final cost of the product or service. The rate of sales tax varies by location, with different states and localities having their own rates.
Here’s a table of state sales tax rates, average local sales tax rates and combined tax rates as of July 1, 2023, including the District of Columbia. Delaware, Montana, New Hampshire and Oregon aren’t included in the table because they don’t have state or local sales taxes.
*Based on data organized by The Tax Foundation’s report: State and Local Sales Tax Rates, Midyear 2023
5 States With The Highest Sales Tax
These five states have the highest average state sales tax:
- California (7.25%)
- Indiana (7.00%)
- Mississippi (7.00%)
- Rhode Island (7.00%)
- Tennessee (7.00%)
5 States With The Lowest Sales Tax
Of the states that charge state sales tax, Colorado’s is 2.9%, the lowest state sales tax rate in the U.S. There’s a five-way tie between these states at 4%:
- Alaska
- Georgia
- Hawaii
- New York
- Wyoming
5 States With The Highest Average Combined State And Local Sales Tax Rates
These five states have the highest average combined state and local sales tax:
- Tennessee (9.55%)
- Louisiana (9.55%)
- Arkansas (9.44%)
- Washington (9.40%)
- Alabama (9.24%)
5 States Without Sales Tax
These four states don’t have sales taxes:
- Delaware
- Montana
- New Hampshire
- Oregon
- District of Columbia
Use Tax
Use tax is a tax imposed when sales tax was not imposed but should have been. For example, if a tangible item is purchased off the internet, and sales tax was not charged when it should have been, the purchaser is required to consider the sales tax what they should have paid in sales tax, and submit that to their state on a regular basis, typically monthly or quarterly.
Nexus
In some cases, a business is not responsible for collecting sales tax in a state because they do not have nexus in a state. Nexus is created by having a physical presence in the state, such as employees or buildings and is also created when certain sales thresholds have been obtained. If a business meets the nexus based on the aforementioned requirements, they are required to charge and submit the sales tax to the state.