A general overview of how state and local tax rates are imposed

Sales tax rates vary significantly across the United States, including at the local level. This means that the amount of sales tax you’ll collect from customers will depend on where your business is located.

Differences Between State and Local Tax

State

While there’s no national sales tax, the current average state sales tax rate is around 4.5%. Some states have significantly higher sales tax rates, like Tennessee with 7% and Washington with 6.5% (at the time this article was written). Comparatively, states like Alaska, Delaware, Montana, New Hampshire, and Oregon have no sales tax.

State sales tax is imposed on sale of goods and services and set by state legislation. The rate can vary significantly from one state to another. States determine what goods and services are subject to sales tax. This can include tangible personal property (furniture, electronics, clothing) and services (repairs, cleaning services).

Additionally, some states offer a small discount or compensation for timely filing and remittance of sales tax. Timely discounts are designed to incentivize compliance. 

Local

Local sales tax is imposed by cities, county, and other local jurisdictions in addition to state sales tax. Local governing bodies set the rates. Local tax rates vary widely even within the same state. 

The total sales tax rate a consumer pays is: state sales tax + local sales tax, where applicable. In many states, the state Department of Revenue administers both state and local sales taxes.

Important Considerations for Businesses

To review the most current tax rates, you can use the state’s rate lookup tool(s) online. Sometimes they are referred to as “tax rate tables” and published on a monthly basis. For example, Arizona publishes a monthly table and overview of changes at the county level as “Transaction Privilege and Other Tax Rate Tables.”

Sales tax rates can change due to new legislation or local government decisions. Some states observe sales tax holidays like back-to-school supplies exemptions from sales tax for a short period in the year. During this time, your business would need to adjust tax collection if applicable. 

As a business owner, you must be aware of the specific rates for each state and locality where you operate or have sales. The multi-layered tax structure of sales tax in the USA can be overwhelming, don’t hesitate to reach out to your Taxually customer care team for help!