Sales Tax Fundamentals
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The Sales Tax of Aging
byJune 10, 2021
About 73 million people in the U.S. fall into the Baby Boomer generation. And I recently read a stat that by 2030, all Baby Boomers will be age 65 or over. In other words, the U.S. population is growing older and wiser.
Of course, aging comes with its own set of both challenges, like increased medical care needs, and fun, like retirement and travel. What does sales tax have to do with all that? Let’s find out!
Sales Tax on Medical Care
Let’s get the downsides of aging out of the way. As we age, chances are we’ll be on a prescription drug or two. Or we might require a mobility device like a cane or wall-mounted support bar.
The good news is that prescription drugs are non-taxable pretty much everywhere. (Illinois is the exception, but they only tax prescriptions at 1%.)
The same goes for things like glasses and contacts. If prescribed by a professional, these items are generally non-taxable. And likewise with medical equipment, such as hospital beds or walkers.
That said, when an item isn’t prescribed, things get tricker. Some states still consider medical equipment or over the counter medication that you purchase without a subscription to be non-taxable, too, but your mileage will vary much more widely than with prescriptions.
States that generally exempt medical equipment from tax are: Maryland, Minnesota, Missouri, New Jersey, New York, North Dakota, Pennsylvania, Rhode Island, Vermont, Virginia and Wisconsin.
And last but not least, whether you use Medicare or Medicaid can also make a difference. For example, Alabama considers most things taxable, including medical equipment. But, if that medical equipment is billed to Medicare or Medicaid, it’s non-taxable.
Read more about the taxability of medication here.
Read more about the taxability of medical supplies and equipment here.
Sales Tax and Hobbies
One upside of aging is that you may find more time for hobbies. Taking up a sport? You likely won’t pay sales tax on the fee you pay to join a rec league or intramural team, or to join a club. But you likely will pay sales tax on sporting equipment and clothing, even in states like Pennsylvania where clothing isn’t taxable in other cases.
Want to learn a new skill? States don’t generally require sales tax on face-to-face classes. This includes classes that take place in-person or over the internet, as long as the class is “live” and you can interact in real time with an instructor. But if you decide to take a pre-recorded online class, many states have decided that that is a “digital product,” and you will find yourself paying sales tax on it.
Sales Tax and Self-Employment
People with years of experience in the workforce are also starting businesses. (And we get it, this can be because of good reasons, like finding time to explore a passion, or not-so-good reasons, like insufficient retirement savings.)
If your new business includes a retail component, it’s time to bone up on sales tax.
Sales tax has changed quite a bit over the last three years due to the South Dakota v. Wayfair Supreme Court decision. Where in the past a retail business only had to collect sales tax in states where they had some sort of physical connection, these days higher volume businesses are also required to collect sales tax in states where they do a large volume of sales (aka economic nexus.)
But don’t worry, TaxJar has your back. Our Sales Tax Preparedness Guide explains how to get sales tax compliant in up-to-date plain English. And our state sales tax guides explain the unique sales tax structure in the state where you’re setting up your company.
The Best U.S. States in which to Retire (Sales Tax Edition)
Ready to get the heck out of Dodge? Just really hate sales tax? Then these are the three states where sales tax combined with other factors, like low income and property tax, make sense to retire. And they’re probably not the states you’d expect…
- Wyoming – With an average sales tax of about 5.3%, Wyoming’s is one of the lowest sales tax rates in the nation. Combine that with lack of income tax or estate tax and a fairly low property tax, your cost of living will be cheap. (And you can live in the backyard of Yellowstone and Grand Teton National Parks!)
- Washington DC – Washington DC’s districtwide sales tax is just 6%, which is well below the national average. With low income and property taxes and no inheritance tax, and lots of museums and monuments to explore.
- Delaware – Many corporations are headquartered in Delaware for a reason. The First State has low income tax, very low property tax, no estate or inheritance tax and… no sales tax! This will make your cost of living cheaper, and your self-employment life a bit easier (until your “small” retirement business explodes and hits those economic nexus thresholds, that is!)
We hope this post on the sales tax of aging has given you something to chew on. Thoughts? Questions? We’d love to hear from you on Twitter.