Sales taxes in the United States are taxes added onto the price of goods or services that are purchased in the United States. A sales tax is a tax on consumption, which is displayed as a percentage of the sale price. Sales taxes are assessed by every state except Alaska, Delaware, Montana, New Hampshire and Oregon. Hawaii has a similar tax although it is charged to businesses instead of consumers. In some cases, sales taxes are also assessed at the county or municipal level.
The sales tax is the responsibility of the merchant to collect and remand to the state, and stated separately (or implicitly added at the time of sale) to consumers. Usually only consumers are charged the tax; resellers are exempt if they do not make use of the goods. In some jurisdictions, a reseller's certificate is required to make use of this privilege. This is in contrast to a value added tax (VAT), where resellers are also taxed (resellers may then claim the VAT paid on their purchases from the applicable authority). States which have exemptions for specific types of organizations (such as schools), may also require a certificate. A sales tax audit is the examination of a company’s financial documents by the state’s tax agency to verify if they have collected the correct amount of sales tax from their customers.
The Constitution of the United States limits the power of the states to subjects within their jurisdiction. Jurisdiction over interstate commerce is reserved to the federal government. Nevertheless, a resident of a state with a sales tax who purchases goods from a place with no sales tax (or at a lower rate) might be subject to pay a "use tax" (often at the same rate as the state sales tax) for non-exempt purchases (see also tax-free shopping) . Washington policymakers have also looked at adding a national value added tax in combination with an income tax as a way to generate additional revenue.
History
In 1921, West Virginia became the first US state to enact a sales tax . Georgia passed legislation enacting a sales tax in 1929. 11 other states enacted sales taxes in 1933 alone. By 1940, at least 30 states had a sales tax. Currently, 45 of the 50 U.S. States levy a sales and use tax against purchases. Alaska, Delaware, Montana, New Hampshire, and Oregon are the exceptions.
Impact of sales taxes
Sales taxes are often implemented with the effect of being "regressive" on income (using a cross section time-frame), since low income families spend a greater share of their income on taxable consumption in a given year. Sales taxes can be applied to tangible goods like food (in some states), clothing, cars, furniture, household items, and other goods that make up the bulk of lower-income and middle-income family budgets. By comparison, the sales tax does not generally apply to landscaping services, attorney fees, private school tuition, stocks and bonds, real estate investments, and other purchases more typically made by higher-income families.
The effect on the distribution of economic welfare differs with each state and their implementation of a tax. In addition, sales taxes do not apply to all goods, services, and investments made by various families, creating differing impacts on families at different income levels. Many states attempt to offset regressive effects by exempting necessity goods (like groceries) from the sales tax base. Some states have also worked to expand the sales tax to services, not traditionally taxed, in part as an effort to address fairness and the shift to a service economy. The sales tax also poses equity issues between those who can avoid the sales tax by buying on-line and those who shop locally. The Streamlined Sales Tax Project is an organized effort by states to standardize tax law among states and ultimately begin taxing Internet and mail-order sales in order to address this equity challenge.
Other types of state tax systems can have similar distributions of tax incidence. The Tax Foundation states that corporate taxes accounted for 6.3 percent of low-income households’ tax bills last year and estimate that American households pay $3,190 on average in corporate income taxes per year. Sales taxes are often seen as good tax systems for economic growth, savings, and investment. Economists at the Organisation for Economic Co-operation and Development studied the effects of various types of taxes on the economic growth of developed nations within the OECD and found that sales taxes are one of the least harmful taxes for growth.
States and federal districts
Alabama
Alabama has a state general sales tax of 4%, plus any additional local taxes which can amount to a combined total sales tax of up to 10% in some cities such as Montgomery. Alabama is one of several states that do not exempt food from state taxes. The capital of Montgomery has a sales tax of 3.5%. The largest city of Birmingham has a sales tax of 4%.
Alaska
There is no state sales tax in Alaska; however, local governments (boroughs and their municipalities) may levy up to 7%, and 108 of them do so. Municipal sales taxes are collected in addition to borough sales taxes, if any. Regulations and exemptions vary widely across the state. Anchorage and Fairbanks do not charge a local sales tax. The capital of Juneau has a 5% sales tax rate.
Arizona
Arizona has a transaction privilege tax (TPT) that differs from a "true" sales tax in that the tax is levied on the gross receipts of the vendor and is not a liability of the consumer. (As explained in Arizona Administrative Code rule R15-5-2202, vendors are permitted to pass the amount of the tax on to the consumer, but remain the liable parties for the tax to the state.) TPT is imposed under sixteen tax classifications (as of November 1, 2006), with the tax rate most commonly encountered by Arizona consumers (e.g., for retail transactions) set at 5.6%. The current tax as of 2009 is 6.3%, though cities and counties can add as much as 6% to the total rate. Food for home consumption and prescription drugs (including legend drugs and certain prescribed homeopathic medication) are two of many items of tangible personal property that are statutorily exempt from the state retail TPT, but cities can charge tax on food and many do). Arizona's TPT is one of the few excise taxes in the country imposed on contracting activities rather than sales of construction materials. The capital and largest city of Phoenix has a 2% TPT rate.
Arkansas
Arkansas has a state sales tax of 6%, plus any additional local taxes, for instance Little Rock charges a 0.5% city sales tax.
Effective July 1, 2009, Arkansas state sales tax on unprepared food (groceries) reduced to 2% from 3%. Sales taxes on groceries had previously been reduced to 3% from 6% on July 1, 2007. Local sales taxes on groceries remained unchanged.
California
At 8.25%, California has the highest state sales tax, which can total up to 10.75% with local sales tax included. Sales and use taxes in the state of California are collected by a publicly elected tax commission. The statewide 8.25% is allocated as:
- 8.25% - State
- 5.00% - State - General Fund
- 0.25% - State - Fiscal Recovery Fund
- 0.50% - State - Local Revenue Fund
- 0.50% - State - Local Public Safety Fund
- 1.00% - Uniform Local Tax
- 0.25% - Local County - Transportation funds
- 0.75% - Local City/County - Operational funds
On April 1, 2009 the state sales and use tax increased by 1% as a result of the 2008-2009 California budget crisis. The minimum sales tax statewide is 8.25%.
Supplementary sales tax may be added (with voter approval) by cities, counties, service authorities, and various special districts (such as the Bay Area Rapid Transit district). The effect is that sales tax rates vary from 8.25% (in areas where no additional taxes are charged) to 10.75% (as of July 1, 2009, the city of South Gate and Pico Rivera increased their sales-tax rate to this level, the highest in California). For instance, the capital of Sacramento has a combined 8.75% sales tax rate, and the largest city of Los Angeles has a combined 9.75% sales tax rate.
The last changes to the published local tax rates took effect on April 1, 2007. Official updates are published on the Board of Equalization website and also in Publication 71.
In general, sales tax is required on all purchases of tangible personal property to its ultimate consumer. Services are not subject to sales tax (but may be subject to other taxes).
Vehicle purchases are taxed based on the city and county in which the purchaser registers the vehicle, and not on the county in which the vehicle is purchased. There is therefore no advantage in purchasing a car in a cheaper county to save on sales tax (a one-percent difference in sales tax rate would otherwise result in an additional $300 loss on a $30,000 car).
In grocery stores, unprepared food items are not taxed but vitamins and all other items are. Ready-to-eat hot foods, whether sold by supermarkets or other vendors, are taxed. Restaurant bills are taxed. As an exception, hot beverages and bakery items are tax-exempt if and only if they are for take-out and are not sold with any other hot food. If consumed on the seller's premises, such items are taxed like restaurant meals. All other food is exempt from sales tax.
Also excluded are food animals (livestock), food plants and seeds, fertilizer used to grow food, prescription drugs and certa
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