Sales Tax
A consumption tax charged on retail sales.
Sales tax is a percentage-based tax collected by sellers on retail transactions and remitted to state and local governments. Rates and rules vary significantly by jurisdiction—45 states plus DC impose sales tax, with combined state and local rates ranging from under 5% to over 10%. After the 2018 Wayfair decision, online sellers may owe sales tax in states where they have economic nexus.
Example
An e-commerce store selling a $50 product to a customer in Texas collects $4.13 in sales tax (8.25% combined rate) and remits it to the state.
Why It Matters for Your Business
Collecting and remitting sales tax is a legal obligation that varies by state, and non-compliance can result in back taxes, interest, and penalties.
Practical Tips
- •Use automated sales tax software like TaxJar or Avalara to handle multi-state compliance.
- •Register for a sales tax permit in every state where you have nexus before collecting tax.
More Taxes Terms
Adjusted Gross Income
Gross income minus specific deductions like retirement contributions.
Tax Audit
An examination of tax returns by the IRS to verify accuracy.
Capital Gains
Profit from selling an asset for more than its purchase price.
Capital Loss
Loss from selling an asset for less than its purchase price.
Tax Deduction
An expense that reduces taxable income.
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