Small businesses in America must comply with various state and federal government legislation. For any small business to have a successful and clean track record, business owners will need to review certain regulations and requirements before finally opening their doors. One big important element is knowing the sales tax rate of both your state and city.
Sales tax rates can vary across the country, as this is governed at the state level, but can also be different in certain counties and/or districts with some additional rates in certain metropolitan cities. Small business owners can use this free resource to help them calculate sales tax rates in their city and state.
What is sales tax and how does it work?
Sales tax is a small rate that is added to a tangible product or service during the transaction process. State governments and counties normally charge a small rate or certain non-essential products to render other services for residents. Sales tax which can be anything from 3% up to 10% is added to physical items that are sold and traded by businesses. There is not a setlist of which items and services will be required to have a sales tax, as this can be different depending on where your business is located, and the type of goods being transacted.
How do I know if my business will need to charge sales tax?
Depending on where you do business, many store-front locations such as furniture stores, coffee shops, appliance warehouses, and even some clothing retailers will charge sales tax. In the U.S., any tangible item which a person can physically see or touch such as coffee mugs, computers, books, or tables will be subject to sales. Small businesses will need to add a small sales tax rate to their items if it is a taxable item. Over the last few years, many states have waived sales tax on certain essential items such as school textbooks, clothing, and groceries – but this doesn’t mean it is completely tax-free, as certain counties and cities can still charge a sales tax rate on these items.
Are sales taxes required on items for e-commerce and online stores?
Yes, small businesses trading online will still need to charge sales tax, but the process will work somewhat differently. The sales tax rate on each item will depend on the “shipping to address”, rather than the location where your business is. This means that customers will pay the initial sales tax allocated by their state government. The process has become a lot easier over time, as online stores and e-commerce websites automatically calculate the sales tax at the checkout point.
Why are some small businesses required to charge sales tax?
Sales tax is collected by your local state Department of Revenue, the department will then work per other local authorities and distribute tax earnings to render other public services. Some states use sales tax to upgrade and maintain public parks and recreation facilities, build better roads, fund local police and fire departments, and deliver overall better services to residents.
Is there a flat tax rate?
In short, the answer is no. Each state will have its own sales tax percentage, with the addition of counties and districts having their own, and some cities too. For example, a small business that sells taxable goods in the city of Chicago will need to charge a 10.25% sales tax. The state of Illinois has a 6.25% sales tax rate, with this Cook County has a 1.75% tax rate, the City of Chicago has a 1.25% tax rate and additionally, there is a district tax rate of 1%. This means that small businesses will have to charge a 10.25% sales tax rate on tangible goods and items during the transaction process.
This is only one example, as Chicago is known to be one of the areas with the highest sales tax rate among other US cities. Luckily, five known states have no sales tax, these include New Hampshire, Oregon, Montana, Alaska, and Delaware.