Sales tax laws are especially complicated in the US because each state dictates its own rates, rules and exemptions. It’s on the retailer to ensure they collect the correct rate of sales tax based on each customer’s location. When you sell online or have stores in multiple states, this can get complicated.
To offer some guidance, we’ve created these sales tax maps that break down the tax landscape across the U.S. Find the answers to all your burning questions:
- What’s the statewide tax rate in the states where I operate?
- What’s the maximum local tax rate in these states?
- How much do I need to sell to establish economic nexus in a new state?
- Where are shipping costs taxable?
This guide will provide an overview of what you need to know, but rules and rates around sales tax can change very quickly. You should always speak to a tax professional about your business’s specific circumstances to ensure compliance.
How Sales Tax Rates Work
The sales tax rate you must apply to a transaction can vary significantly depending on where the buyer is based. Each state sets its own base rate, and local jurisdictions, including counties and cities, can add additional taxes on top of the state rate. Two buyers just a few miles apart might pay a different amount of sales tax for the exact same item.
In addition to rate differences, sales tax rules vary based on product type. Some states offer exemptions or reductions for essential items like groceries or clothing. One state will exempt shoes or clothing below a specific price threshold, while the next will tax them as any other product.
As a seller, you need to be aware of both the rates and the specific rules in each state to ensure you collect and remit the correct amount of tax. We recommend using a sales tax calculator as a guide and setting up automated calculations to ensure compliance.
Sales Tax Rates by State Map
State-wide tax rates are subject to change, so you should always speak to a tax professional before setting your own product tax rates. Alternatively, consider using an automated system.
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Maximum Local Sales Tax Rates by State Map
It’s essential to factor local taxes into your calculations. Rates set by local jurisdictions can vary widely within a state, but as a guide, you’ll find the maximum local sales tax rate in each state below.
Understanding Nexus
Nexus rules determine whether a business is required to collect and remit sales tax in a particular state. There are two types of nexus:
- Physical Nexus: You have a physical presence in a state, such as a store, warehouse, office, postal address or employee.
- Economic Nexus: Your yearly total revenue or number of transactions in a state surpasses the threshold set by the state.
If you sell online or in multiple states, it is important to monitor the states where you might be close to passing the threshold. Take a look at the map below to find the economic nexus threshold in each state. These provide a guide to where and when you need to start collecting sales tax based on your sales activity. (As with anything sales tax related, these thresholds are subject to change, so you should always check with an expert.)
Economic Nexus Threshold by State Map
Exemptions, Shipping and Digital Products
Once you’ve established nexus in a new state, you need to check the specific sales tax regulations relating to your product or service. Are groceries, clothes, or healthcare items taxable in the state? How about the shipping costs? Business models like Software-as-a-service (SaaS) are treated differently across the country, so it’s important to check the rules where your customers are based.
As a starting point, take a look at our shipping taxability map and SaaS taxability map. Just bear in mind that in some ‘home rule’ states, local jurisdictions can set their own rules.
SaaS Taxability US Map
Taxability of Shipping Costs US Map
How to Ensure Accurate Calculations
There’s a lot to consider when it comes to sales tax compliance. It’s not as simple as checking the tax rate in each state! We recommend using an automated solution to keep up with constantly changing tax rates, exemptions, and nexus rules across the US.
Yonda Tax automates the entire sales tax process, from nexus monitoring and calculations to filing and remittance. Sound good? Book a no-obligation consultation to discuss your needs.
The information in this article is true to the best of our knowledge at the time of writing, but sales tax regulations can change very quickly. You should always consult a tax professional for legal advice.