Most taxpayers choose to deduct income taxes as it typically results in a larger figure. With that said, it may be better for taxpayers who made large purchases during the year to deduct sales tax instead of income tax if their total sales tax payments exceed state income tax. Taxpayers who paid for a new car, wedding, engagement ring, vacation, or multiple major appliances during a tax year can potentially have a greater sales tax payment than income tax payment.
Sales tax is governed at the state level and no national general sales tax exists. States may grant local governments the authority to impose additional general or selective sales taxes. Alaska, Delaware, Montana, New Hampshire, and Oregon do not enforce sales tax. Although there is no state-mandated sales tax in these five states, keep in mind that there might be local sales tax laws that require you to collect. Different jurisdictions can charge different levels of sales taxes.
Distinguishing goods from nontaxable items
Tax laws vary by location and business structure, so you’ll need to check with state and local governments to know your business’ tax obligations. Use our free sales tax calculator above to return a sales tax rate specific to any US street address. A seller of a house or real estate pays excise taxes on the full sale price. For example, selling a house for $500,000 will incur a tax of $8,900. Although the purchaser is obligated to pay the tax, the seller is obligated to remit the tax, and when the seller fails to remit, the obligation to pay falls on them.
West Virginia was the first US state to enact a sales tax,[215] currently 6%. The sales tax on food was gradually phased out from January 2006 through July 2013.[216] However, prepared food remains taxed at the full rate. Credit is allowed for sales or use taxes paid to another state with respect to the purchase. Ohio law requires virtually every type of business to obtain an Ohio Sales Tax Certificate Number. If someone sells goods on eBay or the internet and ships them to someone in the state they reside, then they must collect sales tax from the buyer and pay the collected tax to the state on a monthly or quarterly basis. If someone sells less than $4 million in annual sales, they do not have to collect or pay sales tax on out-of-state sales.
Sales tax vs. value-added tax (VAT)
In reality, less than 2% of Americans claim sales tax as a deduction each year. In the US and the District of Columbia all states except Alaska, Delaware, Montana, New Hampshire and Oregon impose a state sales tax when you buy items or pay for services. Alaska however does allow localities to charge local sales taxes as do many other states. Sales taxes, how to calculate sales tax including those imposed by local governments, are generally administered at the state level. States imposing sales tax either impose the tax on retail sellers, such as with Transaction Privilege Tax in Arizona,[3] or impose it on retail buyers and require sellers to collect it. In either case, the seller files returns and remits the tax to the state.
